Hold commodities and half of it should be in gold as economic risks rise

4.13.22 - 'Hold Commodities, Half in Gold' -SocGen

Gold last traded at $1,975 an ounce. Silver at $25.71 an ounce.

NEWS SUMMARY: Precious metal prices extended gains Wednesday as wholesale inflation soared 11% in March. U.S. stocks rose as traders shook off more surging inflation and lackluster results from JPMorgan Chase to kick off the first quarter earnings reporting season.

Societe Generale/Kitco--"The Federal Reserve is embarking on an aggressive monetary policy tightening cycle and one international bank is advising investors to maximize their commodity exposure, including exposure to gold.

In a report published by Societe Generale, the bank said it currently holds a maximum allocation of 5% of gold in its Multi-Asset Portfolio, representing half of its commodity exposure. The comment comes as gold prices continue to consolidate between $1,900 and $1,950 an ounce; however, SocGen analysts expect to see a break out to the upside within the next three months.

'High inflation and lower rates suggest that gold will hit record highs. Indeed, we expect gold to reach $2,200/oz in2Q,' the analysts said.

Looking at the other half of its commodity exposure, SocGen analysts said they prefer rotating out of the energy sector and into base metals like copper. The bank also likes silver as an industrial metal.

'To protect portfolios, buying oil is no longer the panacea, as if central banks react too strongly to inflation pressures building up in the economy, they could push the economy into recession leading to a $60/b oil price,' the analysts said....

'War in Ukraine could be followed by a period of cold war, in which strategic autonomy in defense, energy and food would become key policy features. In our view, the Defence sector will become an area of investment and can be ESGcompliant if one follows some simple rules. Central banks will likely try to protect more of their assets, potentially by adding gold,' the analysts said."