The Federal Reserve's release of expectations for a rate hike this year fueled market selling pressure, putting downward pressure on gold prices, with many institutions bearish on the short-term outlook. However, Societe Generale bucked the trend, offering a buy-on-dips strategy and significantly increasing its holdings in gold and commodities. They believe that central bank policies lagging behind inflation and long-term global monetary and geopolitical risks will continue to support gold prices, with a recovery expected in the fourth quarter and ample room for medium- to long-term gains.

The Fed's hawkish signals are suppressing gold prices, and short-term pessimism is spreading in the market.

The Federal Reserve kept the benchmark interest rate unchanged at 3.50%-3.75% at its policy meeting, but updated its economic projections dot plot, suggesting the possibility of a rate hike this year. Fed Chairman Kevin Warsh publicly reiterated the core goal of strictly controlling inflation, and the hawkish statement triggered a continued sell-off of gold in the market. Gold prices weakened again last week, and there are widespread concerns in the industry that prices will fall back to the $4,000 support level.

The prevailing market logic holds that if the Federal Reserve raises interest rates, the resulting increase in US Treasury yields will raise the holding cost of non-interest-bearing gold, thus continuously suppressing precious metal prices. However, the multi-asset strategy team at Societe Generale has moved beyond short-term interest rate speculation, re-evaluating asset allocation from a medium- to long-term inflation hedging perspective, offering a strategy contrary to the market consensus.

Societe Generale significantly increased its gold holdings, completing a full allocation during the pullback window.

Entering the third quarter, Societe Generale updated its full asset portfolio, increasing the gold allocation from 7% in the second quarter to 10%, restoring the full allocation standard, and seizing the opportunity to position itself during this round of gold price declines.

The bank's analysts said that if retail investors' enthusiasm for trading gold ETFs cools down, the volatility of gold prices will narrow; while the demand for gold purchases from central banks around the world is rigid, and the long-term strategy of de-dollarization and the demand from institutions to diversify their stock and bond holdings will continue to support the underlying buying of gold.

In addition to increasing its gold holdings, the bank raised its overall commodity allocation from 8% to 10%, bringing its total commodity position to a record high of 20%. Electrification transformation, the expansion of the artificial intelligence industry, and the self-sufficiency of resources in various countries are three major trends that are favorable to the overall commodity market, with industrial metals and energy sectors showing particularly strong returns.

The long-term upward trend is well-founded, and institutions predict that gold prices will reach $5,000 by 2027.

Societe Generale is not optimistic that the Federal Reserve will actually raise interest rates this year. Analysts say that the current economy has entered a new equilibrium environment where high growth and high inflation coexist. The Fed's policy pace has long lagged behind price changes, and it is highly likely that it will abandon interest rate hikes this year and may even turn to interest rate cuts next year. The allocation value of inflation-hedging assets will continue to increase.

Short-term sell-offs will not change the long-term positive foundation for gold, as the three core supporting factors—continuous currency depreciation, continued deterioration of national fiscal policies, and fragmentation of the global geopolitical landscape—remain unchanged .

The bank gave a clear forecast for gold prices, predicting that they will bottom out and rebound in the fourth quarter of this year, stabilize at $5,000 per ounce in the second quarter of 2027, and are expected to break historical highs in the third quarter of next year.

All assets were rebalanced simultaneously; the portfolio maintained zero cash and significantly increased allocation to risk assets in the third quarter.

In addition to increasing its holdings in commodities and gold, Societe Generale also raised its equity asset holdings, increasing the stock allocation from 50% to 55%; it also increased its allocation to inflation-protected bonds, focusing on US Treasury bonds and Eurozone-related products, while simultaneously expanding its holdings of high-yield corporate bonds.

Based on an optimistic assessment of inflation and commodity prices, the bank did not reserve any cash positions in its asset portfolio in the third quarter, investing all funds in various assets with inflation-hedging properties.

In summary , the Fed's hawkish outlook in the short term has only led to a temporary pullback in gold prices and does not change the medium- to long-term bullish trend for gold. Societe Generale's contrarian increase in holdings confirms the value of precious metals as an investment, coupled with continued central bank gold purchases, policy-driven inflation lag, and demand for hedging against multiple macroeconomic risks. Therefore, the current gold price pullback presents a good opportunity for medium- to long-term gold investment.


Spot gold weekly chart source: EasyForex

At 11:38 AM Beijing time on June 22, spot gold was trading at $4178.78 per ounce.