Federal Reserve Rate Hikes Fuel Gold Volatility, But SocGen Sees Record Highs by 2027

The tightening of monetary policy by the Federal Reserve continues to negatively impact the gold market, with many analysts expecting prices to retest support around $4,000. However, one bank offers investors simple advice: “buy on the dip.”

In anticipation of the third quarter, Société Générale’s market strategists updated their multi-asset portfolio, recommending investors maintain long positions in stocks and commodities, as they expect central banks to lag behind the inflation curve. They stated that in such conditions, investors need inflation protection. “We are rebuilding our gold position, taking advantage of the recent downturn. Looking ahead, gold volatility may decrease if retail investor participation—especially through ETFs—declines, while central banks are likely to remain active buyers, particularly amid ongoing de-dollarization efforts and as institutional investors increasingly diversify their portfolios away from stocks and bonds.”

In the third quarter, the French bank allocated 10% of its funds to gold, up from 7% in the second quarter. Simultaneously, SocGen increased its overall commodity allocation from 8% to 10%. Trends in electrification, artificial intelligence, and sovereignty support the BCOM index, with a bias toward industrial metals and energy. The bank stated that its total commodity allocation of 20% is the highest in history. Analyzing the gold market, SocGen predicts a recovery in the fourth quarter of this year, returning to $5,000 by the second quarter of 2027, with potential for new record highs in the third quarter of next year.

This week, selling pressure on gold resumed after the Federal Reserve left interest rates unchanged in the 3.50% to 3.75% range. However, in its updated economic projections, the central bank indicated support for a possible rate hike by year-end. Fed Chair Kevin Warsh confirmed the central bank’s hawkish stance, emphasizing its commitment to price stability. Nevertheless, SocGen analysts are uncertain whether the Fed will actually raise rates. “Policymakers have effectively adapted to a new equilibrium characterized by higher growth alongside higher inflation risk. This shift is reinforced by the likelihood that the Federal Reserve will lag behind the trend, refraining from raising rates until year-end and even cutting them next year. This means inflation protection is more important than ever.” Despite potential downside risks for gold prices, SocGen stated that the core bullish arguments—sustained currency depreciation, deteriorating fiscal policy, and geopolitical fragmentation—remain unchanged. Alongside increasing commodity exposure, analysts also raised their equity positions to 55% of the portfolio, up from 50% in the second quarter.

The bank also increased its allocation to inflation-protected securities, focusing on U.S. and eurozone bonds. SocGen also raised its share of high-yield corporate bonds. The bank stated it will hold no cash in the third quarter.