Gold remains a core asset to hold ahead of U.S. elections - Société Générale

(Kitco News) - Gold remains a core asset for portfolio managers at Société Générale as the French bank only makes minor adjustments to its multi-asset portfolio ahead of the second quarter.

For the third consecutive quarter, the French bank said it would maintain a 5% exposure to gold, even as it reduced its overall commodity holdings by 1% in its multi-asset portfolio ahead of the second quarter.

The bank’s total commodity holdings represent 9% of the portfolio as it places bets on copper over oil. The analysts said they are keeping their gold investors warm, specifically as geopolitical tensions continue rising ahead of the 2024 U.S. Presidential election.

“Ahead of the US election and associated risks on the fiscal policy, we find virtue in precious metals,” the analysts said.

Although gold represents only a small part of the portfolio, the bank said that it prefers the precious metal and cash as protective assets over U.S. treasuries.

The bank continues to hold 14% of its portfolio in cash. However, in one of the biggest adjustments in the portfolio, the bank reduced its holding in 10-year U.S. Treasuries to 5%, down from 10% exposure in the first quarter.

“With incoming growth and inflation data remaining strong but not strong enough to propel yields meaningfully higher from here, especially at a time when the Fed is biased to ease, the rangebound 10yT suggests more patience as we await a better entry point,” the analysts said.

However, SocGen sees potential for higher gold prices as central bank demand creates a solid floor in the marketplace.

“Gold is making new highs despite ETF demand not significantly increasing. The reason is the demand from central banks, which has continued to grow by around US 330 tons per quarter,” the analysts wrote in the latest report.

“Gold has established itself above the upper part of its multi-year range ($2,075) in the form of a rectangle; this denotes the uptrend has resumed. It has also overcome the peak achieved in December,” the analysts added. The break from multi-year consolidation points towards the possibility of larger upside. The up move is likely to extend towards the next objectives located at projections of $2,250 and $2,360. The target for the rectangle is located at $2,460. The upper limit of the rectangle at $2,075 is near-term support.”

In the broader commodity space, SocGen now sees more potential for copper through the rest of the year as it expects oil prices to struggle.

“With five months of history of the Israel Hamas war, the crude market is starting to discount the probability of direct kinetic action between the US and Iran. With this geopolitical floor under prices eroding and in the absence of an obvious catalyst higher, we find it difficult to find value in crude oil away from the forward curve,” the analysts said. “For copper we are changing our bearish view – largely as a result of the supply glut that was meant to hit the market in 2024 now being delayed to 2025.”

Overall, the French bank remains heavily weighted towards equities, which represents 47% of the total portfolio. Specifically, the fund managers are maintaining a 30% exposure to U.S. equity markets.

Although SocGen has reduced its exposure to U.S. government bonds, it has broadly increased its holding of corporate debt as it says lending conditions have improved.