(Kitco News) - The geopolitical uncertainty pushing nations to diversify away from the U.S. dollar is a good reason for investors to maintain a core position in gold, according to one international bank.
Wednesday, French Bank Société Générale published its third-quarter Multi-Asset Portfolio Strategy where it announced that it is maintaining a 5% holding in gold, even as it reduces its overall commodity exposure.
The updated positioning shows a two percentage point drop in its broader commodity basket, from 9% to 7%, as the bank remains concerned about oil prices. The analysts said they are bearish on oil as they believe OPEC+ nations will be unable to maintain their production cuts.
“We foresee a growing probability that OPEC, particularly Saudi Arabia, switches into the will to regain lost market share at multi decade low, like they did at the end of 1985 or 2014. We’re clearly bearish oil, which should prevent one to be too cautious on its investment profile,” the analyst said.
Meanwhile, SogGen said that it is not looking to change its gold holdings ahead of the U.S. elections in November.
“Decisions to freeze for an indefinite time USD assets of the Russia central bank will enforce multi-year buying of gold by central banks of the global south to protect their reserves. Ahead of the U.S. election, we keep a heavy weight in gold,” the analysts said.
The analysts said they don’t expect gold’s uptrend to correct anytime soon, even as prices consolidate below $2,350 an ounce.
“Gold has been one of the top returning assets in the first part of the year, ranking between Japan and US equities,” the analysts said. “Overbuying, inflation stickiness, widening public deficits, geopolitics, and diversification by central banks/monetary authorities underpin our long-held bullish view on the metal.”
SocGen’s downgrade of the broader commodity market comes as it looks to free up cash and increase its exposure to corporate bonds. Along with its shift in commodities, the bank also decreased its cash holdings to 10% from 14% in the second quarter.
Meanwhile, with recession fears fading, the bank has increased its private credit exposure to 21% from 15%.
Despite these adjustments, the bank said it is maintaining the overall stance it has held since the start of the year.
“MAP has been correctly holding assets that have performed well (Japan equities, Gold, US equities; overall nearly 40% of the portfolio) and underweighting those that have performed poorly (government bonds and inflation; overall just 15% of the portfolio). It has been a broadly stable allocation,” the analysis said in the report. “Over the last 12 months, as the balance has shifted from bonds to equities, we have adjusted the portfolio but not fundamentally changed it.”
“The reason is that we have remained in the same market chapter – a plateau (or call it high for longer),” they added. “We believe that we are still in the same sequence and accordingly maintain a balanced allocation.”
The analyst said they don’t expect to see any material shift in the portfolio until the Federal Reserve cuts interest rates. They also noted that given the U.S. economy’s resilient strength, the U.S. central bank might not start cutting rates until 2025.
