(Kitco News) - Central banks are just getting started with interest rate hikes, but despite this new tightening cycle, they are unlikely to get in front of the inflation curve, which means there is still a solid reason to own gold, according to one international investment bank.
Market analysts at Société Générale said they remain overweight equities and commodities, with a specific focus on gold and copper heading into the final quarter of 2026.
The French bank said it is maintaining a 10% position in gold and a 10% position in broader commodities, unchanged from the third quarter. At the same time, it increased its equity allocation to 58% from 55% while reducing its exposure to government bonds to 12% from 15%.
“2026 YTD has been a year of sharp divergence across asset classes, with equities and commodities performing well while bonds have struggled. Our SGMAP portfolio, with its focus on equity and commodities, has delivered a strong performance against this backdrop,” the analysts said in the report. “Going forward, we believe commodities are an essential asset class to hedge against geo-political and climate risk. A 60/20/20 portfolio, with 60% in equities and 20% each in bonds and commodities, may be better suited to the prevailing environment.”
SocGen said gold continues to play a significant role in their multi-asset portfolio as it sees a revival of the debasement trade, with geopolitical fragmentation and growing concerns about U.S. fiscal and currency credibility driving greater diversification away from traditional reserve assets.
“Central banks continue to buy gold while reducing their exposure to US Treasuries, as geopolitical fragmentation and concerns over fiscal and currency credibility support demand for alternative reserve assets,” the analysts said.
Along with robust central bank demand, SocGen said the cyclical environment is becoming increasingly supportive for the precious metal. Expected lower real interest rates later in the cycle should reduce gold’s opportunity costs as a non-yielding asset, while weakness in the U.S. dollar and renewed investment demand provide additional tailwinds.
“Structural diversification by central banks is now being reinforced by lower real rates, a softer dollar, and returning ETF flows,” the analysts said.
The bank noted that global gold ETF holdings have returned toward 3,000 tonnes, which it sees as confirmation that investment demand is rebuilding.
Against this backdrop, SocGen expects gold’s rally to have further room to run. The bank forecasts prices at $4,750 an ounce in the fourth quarter before reaching $5,000 by the second quarter of 2027 and $5,250 by the third quarter. Its full-year forecasts stand at $4,500 an ounce for 2026 and $5,125 for 2027.
Looking at copper, the analysts said the ongoing AI data center buildout will continue to drive demand for the critical base metal. They added that there is not enough supply to meet growing demand.
“Copper mine production declined by 1.1% year-on-year in 1H26 and could post its first annual contraction since 2017,” the analysts said. “A longer-term issue is the decade of underinvestment that has left a thin pipeline of new projects. Higher prices will help, but a meaningful supply response is unlikely before 2030.”
The bank forecasts copper at $14,750 a tonne in the fourth quarter of 2026, holding at that level in the first quarter of 2027 before rising to $15,000 in the second quarter and $15,250 by the third quarter. SocGen’s full-year forecasts stand at $14,000 a tonne for 2026 and $15,125 for 2027.
The bank’s bullish outlook on gold and commodities comes as bond yields continue to trade just below 5%. Although higher bond yields are traditionally negative for non-yielding assets such as gold, SocGen said the rise in borrowing costs also reflects mounting concerns about sovereign debt sustainability.
SocGen said those concerns are unlikely to disappear through the final months of the year.
“The US no longer has only a primary-deficit problem; it has an interest-cost problem. The CBO expects the primary deficit to remain well below previous crisis peaks. Yet the overall deficit is set to stay above 6% of GDP as net interest outlays rise towards 5% of GDP by the mid-2030s,” the analysts said. “Our Rates team finds that the US is the country most exposed to debt-sustainability concerns among DM countries. The average interest rate on US debt, at c.4%, is well above the 2.3% rate required to stabilise the debt ratio and just below the 4.1% level at which debt servicing becomes difficult to sustain.”
In this environment, SocGen has reduced its exposure to global government bonds to 12%, down from 15% in the third quarter. The bank maintained a 5% allocation to inflation-linked bonds and a 5% allocation to corporate bonds.
