The tougher stance of the US Federal Reserve (Fed) continues to put pressure on the gold market, as more and more experts warn that the precious metal may face deeper corrections in the short term. However, one of the largest banks in Europe believes that this is a suitable time for investors to consider increasing the proportion of gold in their portfolios.
In the Q3 asset allocation report, Société Générale - France's leading multinational bank - said that this bank has increased its gold holding from 7% to 10%, while increasing its investment in commodities from 8% to 10%.
According to French bank strategists, the inflation environment still contains many risks while central banks continue to maintain a cautious approach to monetary policy. This makes the need for risk hedging and asset diversification still highly appreciated.
We are returning to a full allocation level for gold, taking advantage of the recent market correction. In the near future, gold price fluctuations may decrease if short-term speculative cash flow cools down. At the same time, gold buying demand from central banks is likely to remain stable as organizations continue to diversify their reserve portfolios," the analysis group said.
With the latest decision, the total proportion of goods in Société Générale's investment portfolio currently reaches 20%, the highest level that this bank is applying.
According to the assessment of this financial institution, the trend of electrification of the economy, the development of artificial intelligence (AI) and the need for strategic resources continue to create a supporting foundation for commodity groups in the long term, especially industrial metals and energy.
Regarding gold, Société Générale believes that core supporting factors have not changed despite the recent strong correction. The bank expects gold prices to recover in the coming quarters and return to the 5,000 USD/ounce mark by 2027.
The above assessment was made in the context that the gold market has just experienced its third consecutive week of decline. Selling pressure increased after the Fed kept interest rates unchanged in the range of 3.50% - 3.75% but signaled a tougher stance on inflation and left open the possibility of raising interest rates if necessary.
Fed Chairman Kevin Warsh also affirmed that the top priority of the US central bank is still price stability, causing the market to increase expectations that interest rates will remain high for a longer time.
However, Société Générale believes that the market may be reacting strongly to short-term policy signals.
According to this bank, policymakers are increasingly having to adapt to the new economic environment, where growth and inflation coexist at a higher level than the previous period. In that context, the need to protect asset purchasing power and hedge against inflation risks continues to be a supporting factor for gold.
Although acknowledging that gold prices may still fluctuate in the short term, Société Générale believes that the demand for gold from central banks, the trend of diversifying foreign exchange reserves and the need to defend against economic instability are still important drivers of the market.
In addition to increasing the proportion of gold and commodities, the French bank also increased the proportion of shares in its portfolio from 50% to 55%. At the same time, this organization increased investment in bonds protected against inflation in the US and the euro zone, as well as expanded its proportion of high-yield corporate bonds.
Société Générale said it does not hold cash in the Q3 investment portfolio, showing that this bank still prioritizes asset groups that can generate returns and preserve value in the current economic environment.
