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(Kitco News) - Portfolio managers at Société Générale are maintaining a core position in gold, representing 6% of its multi-asset portfolio strategy even as it increases its exposure to U.S. equities and reduces its bond exposure.
The French bank continues to see value in the precious metal and a path above $2,000 an ounce as central banks are unable to bring inflation pressures under control.
"Our U.S. rates strategists see 10-year US rate forecasts moderating significantly by the end of 2024 and with the low-hanging fruit in the fight against inflation already picked, we anticipate that the gold market will have to adjust its forward CPI projections upwards. As a result, we see gold appreciating to $2,200/oz by the end of this year in lumpy moves as forward inflation expectations adjust with the macro newsflow," the analysts said in their third-quarter MAP report.
SocGen has held a 6% core position in gold through the first half of the year. At the same time, the bank is also maintaining a 5% allocation to broader commodities.
Along with gold maintaining its role as a long-term inflation hedge, SocGen said that central bank demand will also continue to support prices.
"As OECD fiat currencies are undermined in their purchasing power, Gold remains a viable alternative as central banks look to diversify their currency holdings," the analysts said.
The bullish outlook on gold comes as the precious metal struggles with prices falling below $1,950 an ounce. Gold has struggled as central banks, led by the Federal Reserve, maintain hawkish monetary policies worldwide.
Although interest rates can still move higher, analysts at SocGen said the world is closer to peak rates, even if the plateau is expected to last longer than markets are expecting. However, the French bank said that now is the time to make some adjustments to its portfolio to add more risk.
"We have been too shy in terms of risk-taking since late last year and wish to adapt our asset allocation against the pain trade (or upside risks on equities), protecting nevertheless from multiple overshoots by reinvesting into some undershoots (we keep US Growth but introduce a cross-asset Value bias when we can) and broadening our investment scope to better control our portfolio volatility," the analysts said in their report. "There has been strong storytelling, and momentum mania, with 'AI boom' stocks adding 500pts to the S&P. We think the AI momentum will build further in 2H and the 500pts gain in the S&P will not reverse. Consequently, we raise our S&P 500 year-end target from 3,800 to 4,300."
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| State Street Global Advisors sees healthy demand for gold and investors are getting younger |
In its third-quarter update, the bank raised its global equity exposure to 45%, up from 35% from the previous quarter. SocGen has increased its U.S. equity exposure to 21%, up from 15%. At the same time, it has reduced its global bond exposure to 20%, down from 29% in the second quarter.
The bank has also reduced its corporate bond position to 10%, down from 15%.
Finally, the bank also increased its cash position to 14%, up from 10% exposure in the second quarter.
"Cash is an attractive option versus both government bonds and credit until central banks open the door to rate cuts," the analysts said.
Although the bank is slightly more optimistic on the health of the economy, the analysts said they still expect to see a shallow and short-lived recession at the start of 2024.
