Banking’s Gold Bulls Double Down on Yellow Metal

Is it now a new world for gold?

As dramatic a statement as that may seem, it is starting to look that way. From the beginning of the new millennium – and at various points in between – gold has displayed a level of resilience that seems as unusual as it does remarkable.

First, there’s this: Since January 2001 through last week, the price of gold has climbed roughly 850%.[1] Not only is that rate of growth formidable in and of itself, it’s also impressive in the context of other assets; gold – and silver as well – acquitted themselves among the best-performing assets over that period.[2]

That’s significant because, historically, precious metals haven’t always had the most stellar long-term track records. It’s not an uncommon characteristic for assets known primarily as tools for hedging and diversifying. Seeing metals post such robust returns over a period of decades, therefore, is worth mentioning.

But it’s more than that. It’s also that metals have demonstrated exceptional durability through what should have been for gold a particularly challenging interest rate climate. From March 2022 through July 2023, the benchmark federal funds rate was raised 11 times for a total of 525 basis points.[3] Yet from the beginning of 2022 through the end of last week, before the Federal Reserve cut interest rates by 50 basis points, rate-sensitive gold appreciated roughly 40%.[4]

To be clear, the manner in which the economic landscape seems to have changed in recent years, including heightened geopolitical risk, unprecedented fiscal recklessness both here and abroad, deglobalization, and chronically higher inflation on a global scale, appears to be revising multiple longstanding paradigms.

For example, not only has the prevailing environment prompted gold to outperform, but it seems that commodities, as a whole, have become a preferred asset class; so much so, in fact, that analysts at Bank of America recently suggested the possibility that bonds should be swapped out for commodities as the 40% allocation in the storied 60/40 portfolio model, because their recent analysis determined that commodities now are the better and more reliable diversifiers.[5]

But as favorably as many analysts have come to view commodities, overall, it turns out that strategists at some of the world’s most prominent investment banks have decided that it is, in fact, gold, which deserves the most acclaim in the realm of real assets.

Analysts at France global multinational bank Societe Generale – known commonly and less formally as SocGen – recently concluded that global conditions and circumstances have conspired in such a way that gold is now the institution’s number one commodity allocation.

How number one? Well, it turns out there’s no number two. For SocGen, gold is the only commodity worthy of an allocation right now.

The fact that it seems like such an aggressive posture – which it is – speaks to just how strongly SocGen feels about gold right now.

And as it turns out, SocGen isn’t alone in much-preferring gold among available commodities. It seems Goldman Sachs, one of the world’s largest investment banks, feels much the same way.

This week, we’re going to look closer at SocGen’s position, as well as that of Goldman Sachs. Just what is it about gold, the economic climate, or both that would compel these institutions to embrace the metal as completely as they have?

And as we seek to answer those questions, we’ll also see if there is anything instructive we can glean from the inquiry; something – or “things” – that might prove enlightening to individual investors who find themselves tasked with navigating their own portfolios at a startingly challenging time in modern economic history.

Let’s get started.

Societe Generale: Our Entire Commodities Allocation Is in Gold

In its just-published Q4 2024 Global Asset Allocation Outlook, SocGen analysts clarify the reasons they think gold has continued to move higher since publication of the firm’s previous commodities review.

“Buoyed by geopolitical uncertainty and a moderating inflation environment in the U.S., as well as a potential convergence of fiscal costs whoever wins the U.S. presidential election, gold has continued its march higher since our analysts’ last quarterly,” the analysts wrote. “The question now is where we go from here.”[6]

SocGen analysts don’t know, for sure, of course. But they do have what they consider to be an awfully strong hunch. And that hunch is telling them that the answer is: higher.

The reason for that, ultimately, is that going forward they see multiple drivers of gold, each of which they describe as “overwhelmingly positive” for prices: “geopolitics, the dollar and rates, central bank purchases, investor flows and fundamentals.”[7]

Sure enough, in their outlook, the SocGen analysts clarify that they mean what they say when it comes to how deeply they believe in gold right now. Currently, gold represents SocGen’s entire (as in 100%) position in commodities. And in terms of overall asset allocation, SocGen has raised the allocation to gold by 40% over the previous quarter.[8]

Clarifying gold’s contribution to the enhancement of returns in one of the bank’s benchmark portfolios, the analysts note, “Except for developed market equities, most asset classes have delivered single-digit returns in 2024 YTD (year to date). In this context, SGMAP [Societe Generale Multi Asset Portfolio] continues to perform well with robust returns and low volatility.”[9]

“Our focus on U.S. equity, corporate credit and gold has enabled SGMAP to absorb periodic bursts in volatility,” they added, underscoring gold’s potential to overperform in the current economic climate.[10]

Unlike other analysts that in general appear to have a more optimistic outlook on commodities, SocGen actually is more bearish right now on key natural resources, including oil and base metals. They are, however, bullish on gold specifically.

“Disappointing demand for most commodities is a striking feature, leading our commodities experts to revise down their price forecasts for base metals,” SocGen analysts said. Referring to their model portfolio allocations, they explained, “We reduce our exposure to cyclical commodities by 2 points to zero. Meanwhile, we raise gold by 2 points to 7%, as geopolitical issues are only likely to boost demand for the asset further in the Global South.”[11]

Stressing that gold is “the only commodity thriving,” the analysts suggest that “a synchronous global monetary easing cycle and central banks’ gold purchases, mainly from non-Western-aligned countries, are fueling gold’s rise.”[12]

Continuing, the SocGen analysts explain, “We attribute this trend to two factors: (1) growing concerns about the sustainability of the U.S.-centric global financial system and (2) increasing apprehension about sanctions. Increasing multipolarization and public debt worldwide suggest long-term support for central banks’ gold purchases, indicating a steady inflation-adjusted gold price increase over the long run.”[13]

In other words: Bank of America strategists noted in their analysis of the 60/40 portfolio mix that the onset of structural inflation has been favorable for commodities generally. However, select features of the current economic landscape, such as deglobalization, de-dollarization and global fiscal uncertainty, are predisposed to catalyzing gold specifically on the basis of its property as a perceived safe haven.

“Gold,” said SocGen analysts at one point in their outlook report, “is our favorite asset in the commodity complex.”[14]

And, as it turns out, they’re not the only analysts at a global multinational bank who feel that way.

Goldman Sachs: Gold Is “the Commodity Where We Have the Highest Confidence”

Earlier this month, analysts at Goldman Sachs also named gold as their top commodity allocation, with lead strategist Samantha Dart remarking, “Gold stands out as the commodity where we have the highest confidence in near-term upside.”[15]

Just like the analysts at SocGen, those at Goldman specifically identified other commodities such as oil, natural gas, and copper as components of that asset class which they don’t see as being as attractive right now from an investment perspective. And just as with SocGen, that appears to be largely because, despite the general conditions that may broadly favor commodities as a whole right now, Goldman has identified a set of gold-specific drivers that are poised to continue providing the metal with its own unique momentum:

• “We believe that the tripling in central bank purchases since mid-2022 on fears about U.S. financial sanctions and U.S. sovereign debt is structural and will continue, reported or unreported.”

• “Imminent Fed rate cuts are poised to bring Western capital back into the gold market, a component largely absent from the sharp gold rally observed in the last two years.”

• “Gold offers significant hedging value to portfolios against geopolitical shocks including tariffs, Fed subordination risk, and debt fears.”[16]

It’s for these reasons, in fact, that Goldman is suggesting to investors that the time may be right for them to “go for gold.”[17]

That recommendation might make sense to some individual investors, too. After all, the reasons for prioritizing gold cited by Goldman Sachs and SocGen transcend the interests of large institutions. That’s because individual investors can benefit in the same way from the potentially positive impacts of those reasons on metals’ prices.

To benefit, however, those investors must first own the metal. Fortunately, it now is easy for everyone – not just central banks and global multinational financial institutions – to own high-quality gold and silver, including through a tax-advantaged retirement account known as a gold IRA (make certain to discuss the tax implications of IRAs with a qualified professional).

Ease of access aside, many investors may conclude neither gold nor silver is for them. Metals are seen as alternative assets, after all. Some individual savers may question how such assets fit into their portfolios that are comprised chiefly of individual equities, bond funds, and other mainstream “paper” instruments. And, certainly, anyone considering the addition of gold or silver to their own inventory of assets should consult with their financial advisor.

What those investors may have less of a struggle rationalizing, however, is the potential utility of owning precious metals. The “significant hedging value” of gold referenced by Goldman analysts is something from which investors at any level might benefit, particularly given the diverse array of risks against which the metal can help provide that value. And if projections of future global economic uncertainty prove accurate, it’s difficult to imagine how an asset universally prized as an effective portfolio hedge and diversifier won’t provide at least some possible benefit in that environment.[18]

[1] CNBC.com, “Gold COMEX (Dec′24)” (accessed 9/19/24).

[2] StockCharts.com (accessed 9/19/24).

[3] FederalReserve.gov, “Open Market Operations” (accessed 9/19/24).

[4] CNBC.com, “Gold COMEX (Dec′24).”

[5] Sagarika Jaisinghani, Yahoo Finance, “Swap Bonds for Commodities in 60/40 Funds, BofA Strategists Say” (August 30, 2024, accessed 9/19/24).

[6] Ernest Hoffman, Kitco, “Gold to average $2,800/oz by 2025, now represents 100% of commodity allocation – SocGen” (September 16, 2024, accessed 9/19/24).

[7] Hoffman, “Gold to average $2,800/oz by 2025.”

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] Ibid.

[13] Ibid.

[14] Ibid.

[15] Matthew Fox, Business Insider, “3 reasons to pile into gold with the metal poised to rally in 2025, according to Goldman Sachs” (September 3, 2024, accessed 9/19/24).

[16] Ibid.

[17] Ibid.

[18] Pierre-Olivier Gourinchas, IMF.org, “July 16, 2024, accessed 9/19/24).