Recession watch: How to hedge now

The recent historic tariff announcements have raised the risk of recession. So how can investors hedge against this risk? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm joined by Don Stryven, our co head of global commodities research, who's making the case that that oil and gold are particularly well positioned to protect investors against recession risk today. Don, it's great to have you back on the program.

It's great to be on, Allison. Thank you so much.

So, Don, I wanna start with gold. We think of it as a safe haven asset. We think of it as an asset you wanna own in a portfolio when the economy is struggling, when risk markets are struggling. And in fact, gold, as you're gonna tell us, has had a tremendous performance, in the recent period. But it's been somewhat surprising, I think, to a lot of investors that that hasn't been the case every day. In fact, in some of the most volatile days in the recent week, I should say, gold sold off along with risky assets. So first, give give us some insight into those moves. How do you explain them?

Yeah. So I think it's mostly because of forced selling. Basically, investors suffering losses on portfolios of risky assets such as equities and being forced to come up with liquidity to meet those margin calls. And one of the possibilities through which you can meet as margin calls is by by selling gold. This is not that unusual. We have seen this before, but what happens typically once equity volatility stabilizes, spec positioning tends to rise back up. And in fact, if you look at price action of the last week, silver was down 11%. Gold was down 4%. But investors are more reluctant to liqui

Well, when you think about that positioning though, just to be clear, investors are still quite long gold. If you think about how much unwound in recent days, where would you put that?

Yeah. So before the announcements of the tariffs, we were, you know, around percentile 85 or so of the distribution. We don't have the data yet for this week, but we think that positioning is now probably pretty close to the median, to the historical average based on the partial positioning data through Thursday and the price section we, we have seen. So in other words, positioning is quite clean, and So I think this is a very attractive entry point to enter long gold positions, especially as a hedge. Both against the general risk of a recession in The US or globally, but also given the partic

We're still above $3,000 per troy ounce on gold. So where do you think gold is headed? Obviously, our discussion is mostly around hedging risk. So it's a hedge, but you actually have an outright bullish call on gold. That's

the beauty. In the base case where The US economy stagnates but avoids a recession, we have gold rising another 10% by year end, $3,300 per per troy ounce. But if you look at the risk around that forecast, they are very much skewed to the upside. In fact, we think that gold could rally to $4,250 per trillions by year end. If we were to see a recession, which was really boost ETF investors demand for gold, as the Fed would cut probably by around 200 basis points. If central banks were to continue the very rapid purchases rhythm of of of gold over the last few months, it would get there too. And

Okay. Interesting. Let's turn to oil. You have cut your oil price forecast pretty dramatically. You actually are below where the market forwards our pricing right now. So very bearish from that perspective. Not entirely surprising because we obviously have seen concerns about recession rising. You associate that wi