Goldman Sachs Trading Desk: Gold's rise may slow, but the "currency devaluation trade" is far from over.

Gold is experiencing one of its strongest monthly performances in decades, with market focus on the "currency devaluation" narrative climbing to its highest level since January 2026. Goldman Sachs' derivatives team believes the pace of this rally may slow, but the core themes driving gold's strength remain unchanged.

In his latest report, Goldman Sachs derivatives strategist Brian Garrett noted that gold has risen 10% this month, with market bullish sentiment clearly heating up – call options are showing a stronger skew, and Goldman Sachs' trading desk continues to observe an increase in upside positions, including bull spreads and barrier option structures. Meanwhile, Goldman Sachs maintains its target price of 4900 for the S&P 500, while also highlighting remaining upside risks.

In terms of market sentiment, a noteworthy divergence signal has emerged: the S&P 500 has repeatedly hit record highs, while the VIX remains below 16, and the bearish proportion of the Association of American Retail Investors (AAII) has been above 40% for three consecutive weeks. Garrett points out that this combination is historically a bullish signal, corresponding to an average return of 1.1% for the S&P 500 over the next month and an average return of 2.9% over three months, with a success rate of approximately 75%.

Gold: The rate of increase may slow, but "devaluation trading" remains the main theme.

Gold has risen about 10% this month, one of its best monthly performances in decades. The number of reports on the topic of "currency devaluation" has risen to its highest level since January 2026—when gold's volatility briefly hit 100 and silver's reached as high as 300.

Garrett explicitly stated that he believes the pace of this rally may slow, but the narrative of currency devaluation will not dissipate. From an operational perspective, Goldman Sachs' trading desk currently prefers to capture upside opportunities through structural methods such as call spreads or barrier options, rather than directly chasing the rally, which is also the "cheapest way to express" in the current market environment.

Implied volatility for individual stocks has fallen to historic lows, opening a window to buy volatility.

Goldman Sachs trading desk observed a significant decrease in implied volatility for individual stocks over the past month.

Currently, the implied volatility of three-month at-the-money options for about one-third of the S&P 500 stocks is below the 5th percentile of the past six months. The market has unusually priced forward implied volatility for the next three months below realized volatility—that is, a negative volatility premium has emerged, which is rare in the past four years.

Garrett points out that with the Labor Day holiday approaching, market fatigue regarding "long option premiums" has spread, while many Wall Street traders are still on holiday. He believes this presents a window of opportunity to buy individual stock volatility—the current cost-effectiveness of holding volatility positions is once again highlighted.

Mag7's earnings season has ended, with this quarter recording the biggest volatility in a decade.

With Nvidia's earnings report, the quarterly earnings reports of the "Mag 7" tech giants are now complete. Nvidia's market capitalization increased by approximately $450 billion in a single day, and Goldman Sachs Research raised its target price to $300, corresponding to a market capitalization of approximately $7.2 trillion.

Looking at the entire earnings season, the average post-earnings volatility of the Mag7 constituent stocks reached 11%, the highest in nearly a decade: Microsoft 15.5%, Amazon 15.3%, Tesla 14.5%, Nvidia 8.7%, Meta 7.9%, Apple 7.3%, and Google 7.1%. This data means that, at the level of the largest weighted stocks, the price elasticity exhibited this quarter has exceeded the historical average of the past decade.

Momentum factors diverged sharply, and background noise intensified.

Goldman Sachs' high-beta portfolio surged 20% in early August, then plummeted 15% over the past two weeks, closing near its year-to-date low on Friday. Garrett noted that the recent sharp rotation between market "winners" and "losers" has led to significant differences in the composition of the momentum factor basket depending on the observation period.

Taking the Philadelphia Semiconductor ETF (SMH) as an example: in the short term, it has fallen by 13% cumulatively over the past two months, with negative short-term momentum; however, over a longer 12-month period, it has still risen by as much as 83%, indicating strong long-term momentum. This divergence means that momentum strategies based on different time horizons may produce diametrically opposed trading signals in the current market, and investors need to carefully distinguish between them.

Monetary policy expectations: The market is pricing in a 60% probability of a rate hike in September.

At the macro level, Goldman Sachs expects the Federal Reserve to remain on hold, but acknowledges that the market's pricing in a September rate hike of about 60% is "somewhat justified."

It is worth noting that the Jackson Hole meeting resulted in an interest rate trend contrary to expectations. The market had thought that the hawkish stance would help restore the credibility of the Federal Reserve and lower long-term yields, but in reality, the 10-year Treasury yield rose by 4 basis points on the day, and has risen by a total of 25 basis points so far this quarter.

Meanwhile, according to Goldman Sachs' net exposure data, the overall market net exposure fell to its lowest level since "Liberation Day" (2025) last week, reflecting that cautious sentiment on the funding side continues.

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