(Kitco News) - Renewed investor interest is providing new support for gold above $4,600 an ounce, and according to Société Générale, the precious metal will continue to play an important role in a diversified portfolio.
Gold’s ability to withstand a stronger U.S. dollar (Kitco Global Index shows how much of today's gold move is the dollar versus the gold market itself.) and higher interest rates is reinforcing its role as a strategic portfolio asset as investors face persistent inflation, geopolitical instability and growing policy uncertainty, analysts at the French bank said in their latest cross-asset strategy report.
The analysts said they remain strategically bullish on gold, identifying the precious metal as one of seven assets investors can use to hedge against inflation risks. Société Générale’s broader strategy includes inflation-linked bonds, copper, select equities and private credit, with gold specifically positioned as a hedge against policy uncertainty.
The latest comments on gold are broadly in line with the bank’s current portfolio positioning. In June, SocGen said that for the third quarter it would have a 10% allocation to gold, up from 7% in the second quarter. At the same time, SocGen increased its broader commodity exposure to 10% from 8%.
The bank said it sees a growing disconnect between benign market-based inflation expectations and an economic environment that could keep price pressures elevated for longer than currently anticipated.
Société Générale said a new wave of U.S. tariffs, accelerating artificial intelligence and infrastructure investment, volatile oil prices and persistently large government deficits across developed economies all point to a more inflationary medium-term environment.
At the same time, the bank said current Federal Reserve expectations may not adequately reflect those risks. Markets were pricing roughly 35 basis points of tightening by the end of 2026 when the report was published, but Société Générale noted that even that would not be enough to bring monetary policy in line with the Atlanta Fed’s Taylor Rule calculation.
That disconnect, the analysts said, reinforces the argument that “inflation risks remain underpriced and warrant dedicated portfolio protection.”
The analysts also said gold should not be viewed as the portfolio’s only inflation hedge. Instead, Société Générale sees the metal playing a differentiated role within a broader strategy designed to protect against several potential sources of instability.
The bank pointed to gold’s performance since mid-2025, when markets shifted from expecting additional Federal Reserve easing to debating whether policymakers would deliver one or two more rate hikes. That shift pushed two-year Treasury yields back above 4% and strengthened the U.S. dollar, while gold remained well above its mid-2025 levels.
Société Générale said much of the hawkish adjustment in monetary policy has already been absorbed by financial markets. The analysts said it would take a significantly larger inflation shock accompanied by a much more aggressive Federal Reserve response to create another substantial repricing in interest rates.
“With much of the hawkish adjustment already reflected in financial markets, the downside risk for gold appears increasingly limited,” the analysts said.
The analysts also said the composition of gold demand is evolving in a supportive direction.
Gold-backed exchange-traded fund inflows have moderated significantly this year, reducing the role of tactical and momentum-driven investors. Meanwhile, declining gold volatility has created what Société Générale described as a more attractive entry point for reserve managers.
SocGen also pointed to central-bank demand as an increasingly important source of support for the market. China continues to increase its gold reserves, while broader reserve diversification remains a structural priority among many emerging-market central banks, the analysts said.
“As speculative demand fades and official-sector buying remains robust, central banks are increasingly becoming the key anchor for the gold market,” the analysts said.
Société Générale also linked gold’s portfolio role to broader geopolitical risks that could keep commodity prices and supply-chain costs elevated.
The bank noted that renewed U.S.-Iran hostilities and tensions surrounding the Strait of Hormuz have increased the geopolitical risk premium embedded in oil markets. Even without major outright supply disruptions, the analysts said changes to shipping routes, inventory rebuilding and efforts to diversify supply chains could keep costs structurally higher.
The bank warned that energy prices could stabilize without returning to pre-conflict conditions, creating more persistent inflation than falling spot oil prices might suggest.
Société Générale’s broader portfolio strategy is designed to use different assets to address different inflation risks rather than relying on a single hedge.
The bank described U.S. TIPS as its preferred direct inflation hedge, while copper provides exposure to inflation generated by infrastructure, electrification, AI investment and constrained commodity supply. Gold, by comparison, is positioned as a hedge against monetary, geopolitical and policy uncertainty.
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