The Federal Reserve is embarking on a cycle of aggressive monetary tightening, so one international bank advises investors to maximize their exposure to commodities, including gold.
In a report published by Societe Generale, the French bank said that gold makes up a maximum of 5% of its multi-asset portfolio, which is half of its commodity exposure. The comment comes as gold prices continue to consolidate between $1,900 and $1,950 an ounce. However, analysts at SocGen expect to see an upside breakout within the next three months.
Looking at the other half of its commodity exposure, experts at SocGen say they prefer to move away from the energy sector into base metals like copper. The bank also likes silver as an industrial metal.
The adjustments to the bank's multi-asset portfolio came after the French bank warned investors that economic risks are getting higher as the global economy enters a new cycle. They said they were increasing their positions in cash and US government bonds while reducing their exposure to equities.
Taking into account more hawkish actions by central banks, particularly from the Federal Reserve, the bank will keep its large USD exposure which makes up 55% of the total portfolio.
Despite higher economic risks, analysts do not see a recession or stagflation coming.
Also, analysts at SocGen mentioned the tense geopolitical situation and further uncertainty could drive commodity prices higher.