World gold prices continue to receive support as investment capital returns to the precious metals market. The French banking group (Société Générale) believes that the ability of gold to maintain its strength even in an environment where the USD is rising and interest rates are high is strengthening the role of precious metals as a strategic asset in the investment portfolio.
In the latest multi-asset strategy report, French banking experts maintain the view of strategic price increases for gold, while classifying the precious metal into the group of 7 assets that can be used to hedge against inflation risks. Société Générale's broader strategy also includes inflation-linked bonds, copper, some stocks and private credit.
Notably, Société Générale does not only see gold as an inflation hedging tool. The bank believes that precious metals have their own role in protecting portfolios from monetary, geopolitical and policy instability.
This view is consistent with Société Générale's asset allocation strategy. In June, the bank said it would increase the proportion of gold in the portfolio in the third quarter to 10%, from 7% in the second quarter. The proportion of goods in general was also increased from 8% to 10%.
Société Générale believes that there is a gap between the relatively positive inflation expectation of the market and the economic environment that may cause price pressure to last longer than expected. The new US tariff wave, strong investment in artificial intelligence and infrastructure, volatile oil prices and prolonged budget deficits in developed economies can all create a more persistent inflation environment in the medium term.
Meanwhile, market expectations about US monetary policy may not fully reflect these risks. At the time the report was released, the market was valuing about 35 basis points of tightening policy by the end of 2026. Société Générale believes that even this adjustment is not enough to bring monetary policy back to a level consistent with the Taylor rule calculation.
According to the French bank, this shows that the inflation risk is being underestimated by the market and investors need to have specialized defense tools.
Société Générale also believes that the developments of gold since mid-2025 are a noteworthy sign. In the period when the market shifted from expecting the Fed to continue to ease to debating the possibility of raising interest rates, the yield of US Treasury bonds for 2 years exceeded 4% and the USD strengthened. However, gold still maintained significantly higher than the mid-2025 level.
The bank believes that most of the tightening adjustment of monetary policy has been absorbed by the market. Therefore, to create a strong revaluation of interest rates and put significant pressure on gold, a larger inflation shock needs to appear, and the Fed must react much more drastically.
This makes the risk of falling prices for gold increasingly limited, according to Société Générale.
Another factor changing the structure of gold demand is investment capital flows. Cash flow into gold ETFs has decreased significantly this year, reducing the role of short-term investors and cash flow chasing momentum. However, lower gold price fluctuations are creating more attractive entry points for reserve managers.
In that context, demand from central banks is increasingly becoming an important support. Société Générale said that China continues to increase its gold reserves, while diversification of reserves remains a structural priority for many central banks in emerging economies.
As speculative demand declines but official sector gold buying activity remains strong, the central bank is increasingly becoming the main pillar of the gold market.
Société Générale also warned that geopolitical risks could cause commodity prices and supply chain costs to remain high. US-Iran tensions and instability related to the Strait of Hormuz have increased the risk premium on the oil market. Even without serious supply disruptions, changes in shipping routes, demand for rebuilding inventory and efforts to diversify supply chains could still cause costs to remain high.
In its asset allocation strategy, the Société Générale does not use a single asset to hedge against all inflation risks. The bank sees US Treasury bonds (TIPS) as a direct hedge against inflation, while also benefiting from infrastructure needs, electrification, artificial intelligence and limited supply of goods.
With gold, the prominent role lies in the ability to prevent monetary, geopolitical and policy instability. In the context of gold prices maintaining above 4,600 USD/ounce, Société Générale believes that the medium-term outlook for the precious metal is still strengthened by central bank reserve demand, persistent inflation risk and instability in global economic policy.
