(Kitco News) - One major investment bank is looking to increase its exposure to gold as a protective hedge, as the Federal Reserve prepares to restart its easing cycle even while inflation pressures remain elevated.
On Wednesday, analysts at French bank Société Générale announced an adjustment to their gold position as part of the quarterly Multi-Asset Portfolio Strategy. After keeping its position steady at 7% for roughly a year, the bank increased its exposure to gold to 10% of the total portfolio.
The shift comes as the bank exits a 3% position in the oil market that had been established ahead of the third quarter.
“The Fed eases rates in a context of high and sticky inflation. We increase protection by: i) moving our gold overweight position to maximum overweight (+3 pp to 10%), meaning gold is now the only direct commodity exposure in the MAP; and ii) keeping US-inflation-linked bonds at the maximum level of 5%,” the analysts said in the report.
The bank noted that it has been consistently overweight on gold since late 2022.
Looking ahead to the final three months of the year, SocGen expects gold prices to average around $3,825 an ounce, and to average around $4,128 an ounce next year.
“From an asset allocation perspective, we have looked at gold in the context of the USD’s dominance being challenged. The key drivers supporting gold remain firmly intact,” the analysts said.
They added that they expect gold prices to remain well supported as falling interest rates and elevated inflation push real yields lower, increasing demand for gold as an alternative store of value.
At the same time, the analysts said that the ongoing global diversification trend away from the U.S. dollar makes the precious metal an important monetary asset. They added that they don’t expect higher prices to be a barrier to further central bank purchases.
“Central banks continue to view gold as a strategic asset for diversification and reserve management and have maintained their buying activity regardless of the elevated price levels,” the analysts said.
The increased exposure to gold comes as the bank once again turns bearish on oil. The bank saw a tactical opportunity in the third quarter, expecting geopolitical uncertainty to support energy prices.
“In oil markets, geopolitical risks have not disappeared – they have just taken a significant back seat to fundamentals, which have moved to the fore,” the analysts said.
Through year-end and 2026, SocGen expects weak demand and growing supplies to weigh on oil prices.
“We are keeping our Brent price forecasts at $60/bbl for end-2025 and $52/bbl for end-2026,” the analysts said.
Looking beyond commodities, SocGen made only slight adjustments to its broader portfolio as it anticipates the Federal Reserve will start cutting interest rates while the U.S. economy remains relatively stable.
“History shows that a more dovish Fed clearly boosts global equities, and not just US equities (+2 bp at 27% of total portfolio) – hence our reinvestment from cash (-5 bp to 5%),” the analysts said.
