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Market News Potentially positive gold price! Gold demand increases as emerging market central banks de-dollarize
Potentially positive gold price! Gold demand increases as emerging market central banks de-dollarize
The bank is paying particular attention to central banks in non-OECD countries, as some seek to diversify away from the dollar and diversify their assets. Emerging market central banks have a low share of gold in their reserve assets, on average, around 3%. Non-OECD countries have increased their gold holdings from a lower starting point, but they are still severely underinvested compared to OECD countries.
2022-06-02
10164
While rising real interest rates will continue to create a challenging environment for the gold market, analysts at Societe Generale see some potential for gold as an important diversification tool for central banks .
The French bank is paying particular attention to central banks in non-OECD countries, as some seek to diversify away from the dollar and diversify their assets .
The dollar's role as the world's reserve currency has been under scrutiny since Russia's invasion of Ukraine. In response to the conflict, the United States and Western allies have imposed significant economic sanctions on Russia, effectively weaponizing the dollar.
Analysts say central banks in developed Western countries already hold large gold reserves. For example, they point out that Portugal's central bank holds more than 72% of its foreign exchange reserves in gold.
By contrast, emerging market central banks have an average of about 3% of gold in their reserve assets, Societe Generale noted.
The analysts said: “The current freeze of some reserve assets by the Bank of Russia, against the backdrop of most central banks expressing a desire to de-dollarize their asset allocations, underscores the risks inherent in some dollar assets, including U.S. Treasuries. Non-OECD countries Add gold from a lower starting point, but they are still severely underinvested compared to OECD countries.”
In its latest multi-asset portfolio strategy, Societe Generale recommends a 5% allocation to gold. "If our reasoning proves correct and non-OECD central banks overweight gold by, say, 5%, theoretically, given their current lower weight than OECD central banks, the proportion could be even higher," the bank's analysts said. High - that would be equivalent to 475 tonnes of gold, or 13% of gold production in 2021."
Societe Generale appears to be relatively neutral on gold in the near term as they point out that the Fed's aggressive rate hikes are pushing up real rates. At the same time, however, they highlighted that rising inflation is a positive for gold .
"While gold may see occasional spikes as geopolitical tensions unfold, fundamentally we are not bullish on gold at the end of the year as real yields should be supported by Fed tightening," the analysts said. That said, real yields (UST yields minus CPI) are likely to remain negative until the U.S. enters the next recession, reducing the opportunity cost for investors to buy gold for an extended period of time.”
Spot Gold Daily Chart
At 13:57 on June 2, GMT+8, spot gold was quoted at $1845.34 per ounce
The French bank is paying particular attention to central banks in non-OECD countries, as some seek to diversify away from the dollar and diversify their assets .
The dollar's role as the world's reserve currency has been under scrutiny since Russia's invasion of Ukraine. In response to the conflict, the United States and Western allies have imposed significant economic sanctions on Russia, effectively weaponizing the dollar.
Analysts say central banks in developed Western countries already hold large gold reserves. For example, they point out that Portugal's central bank holds more than 72% of its foreign exchange reserves in gold.
By contrast, emerging market central banks have an average of about 3% of gold in their reserve assets, Societe Generale noted.
The analysts said: “The current freeze of some reserve assets by the Bank of Russia, against the backdrop of most central banks expressing a desire to de-dollarize their asset allocations, underscores the risks inherent in some dollar assets, including U.S. Treasuries. Non-OECD countries Add gold from a lower starting point, but they are still severely underinvested compared to OECD countries.”
In its latest multi-asset portfolio strategy, Societe Generale recommends a 5% allocation to gold. "If our reasoning proves correct and non-OECD central banks overweight gold by, say, 5%, theoretically, given their current lower weight than OECD central banks, the proportion could be even higher," the bank's analysts said. High - that would be equivalent to 475 tonnes of gold, or 13% of gold production in 2021."
Societe Generale appears to be relatively neutral on gold in the near term as they point out that the Fed's aggressive rate hikes are pushing up real rates. At the same time, however, they highlighted that rising inflation is a positive for gold .
"While gold may see occasional spikes as geopolitical tensions unfold, fundamentally we are not bullish on gold at the end of the year as real yields should be supported by Fed tightening," the analysts said. That said, real yields (UST yields minus CPI) are likely to remain negative until the U.S. enters the next recession, reducing the opportunity cost for investors to buy gold for an extended period of time.”
Spot Gold Daily Chart
At 13:57 on June 2, GMT+8, spot gold was quoted at $1845.34 per ounce
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