Persistent inflation, oil-driven price shocks and higher-for-longer rates will cap gold’s medium-term upside – SocGen

The French banking giant cautioned that gold investors may be in for an extended period of muted ETF flows combined with a pause in central bank purchases.

“The market is finely 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,” they wrote. “Our analyst’s central scenario is driven by persistent inflation, oil-driven price shocks and a clear ‘higher for-longer’ rates regime.”

SocGen analysts expect the world’s major central banks will remain cautious, with “the Fed on hold, the ECB still leaning hawkish, and the BoJ gradually tightening.”

Going forward, the analysts see two potential macroeconomic paths. The first is “an AI-led, inflationary growth cycle keeping policy tight,” while the second involves “an energy-driven stagflation shock, particularly in the event of prolonged supply disruptions.”

“Our analysts expect inflation across the US and Europe to stay elevated into early 2027 before moderating, providing only temporary support to gold’s hedge appeal,” they warned. “Crucially, they view policy stability rather than easing as the baseline, limiting upside for gold in the near term.”

SocGen said they do expect some support to emerge later “as real yields gradually decline and the USD initially softens,” but they warned that even then, gold’s upside will be limited by “resilient global growth, strong equity markets and a continued investor preference for risk assets.”

“On the demand side, subdued ETF inflows and constrained central bank activity limit the strength of financial demand, though a recovery is anticipated into 2027,” they added. “Physical demand, particularly jewellery, shows resilience in value terms and could provide marginal support as prices consolidate.”