SocGen: Persistent Inflation and Higher Rates Will Cause Issues to Gold's Price
Societe General warns that gold faces a limited near-term runway despite falling real yields, as strong equity markets keep investors favoring risk assets over bullion.
Societe General (SG) made a bold statement on gold's near-term prospects, arguing that even a weakening USD and declining real yields may not be enough to lift bullion, while equity markets (on the other hand) continue to attract risk-seeking capital.
In a note published Wednesday, the French bank's analysts issued a cautious outlook, pointing to persistent inflation, oil-driven price shocks, and a possible "higher-for-longer" interest rate regime as the key variables that might cap gold's upside when it comes to its price action.
“The market is balanced, and the path of monetary policy remains the key variable for gold through its impact on real rates and the opportunity cost of holding a non-yielding asset,” the analysts wrote.
SocGen expects major banks to maintain their foot on the brake. The Fed remains on hold, the ECB retains a hawkish lean, and the Bank of Japan is gradually tightening, all of these is seen as a combination that offers little room for gold to rally.
The bank mapped two potential macro scenarios ahead. One envisions an AI-caused, inflationary period that keeps monetary policy tight. The other, more disruptive path involves an energy-driven stagflation shock, particularly if supply disruptions from the Middle East prove prolonged.
In either case, SocGen sees inflation across the U.S. and the rest of the world to stay high into early of next year before subsiding, which should provide "temporary support to the precious metal's hedge potential." Policy stability, not easing, is the baseline.
As for demand, the picture is equally muted. Subdued ETF inflows and more limited central bank purchasing activity point to tight financial demand in the near period of time. The analysts do anticipate a recovery in 2027, but for now, physical demand, such as from jewelry, remains the bright spot, offering "marginal support as prices consolidate."
Even when real yields finally decline and the dollar softens, SocGen warns that consistent global growth, preferred equity markets and how majority of investors prefer risky stock market will keep gold's rally potential to be minimal. For bullion bulls, patience may be needed as of now.