Societe Generale Analysts: Gold May Take a Breather, But Long-Term Drivers Remain Strong
Gold has been performing as expected leading up to the U.S. election, but Societe Generale analysts suggest that the precious metal may take a breather in the near term. Despite this short-term outlook, they see robust long-term drivers that reinforce gold’s unique role in financial markets.
Societe Generale describes gold as the ultimate ‘unknown unknown’ commodity, highlighting its primary value as a hedge against unforeseen and unpredictable risks. Unlike most commodities, gold’s market dynamics are not influenced by typical supply and demand fundamentals. The firm explains that gold is not seasonal in its supply or demand and is often considered the least commodity-like commodity market.
The limited industrial use of gold sets it apart from other resources, emphasizing its status as a store of value with a unique monetary role. Societe Generale explains that gold’s monetary role makes it an alternative to fiat currencies and a stable store of value in unstable times.
The bank identifies several drivers supporting gold’s current bullish momentum, including persistent fiscal profligacy in the U.S., potential reversals in interest rate policy, the weaponization of the U.S. dollar in sanctions enforcement, and escalating geopolitical risks. Investor sentiment has shifted significantly, with money managers, central banks, and ETFs turning bullish on gold simultaneously over the last quarter.
Societe Generale emphasizes that sentiment on gold has converged with few sellers in sight, solidifying its appeal as a hedge in uncertain times. While a temporary pause in gold’s rally may be imminent, the firm believes that its fundamental strengths and role as a safeguard against ‘unknown unknowns’ ensure its continued relevance in portfolios.
In summary, Societe Generale analysts believe that while gold may experience a short-term slowdown, its long-term prospects remain strong due to its unique role as a hedge against unforeseen risks and its status as a stable store of value in uncertain times. This analysis suggests that investors may consider including gold in their portfolios as a means of diversification and protection against market volatility.