As gold once again approaches the $4,500 per ounce mark, Societe Generale believes the precious metal has regained its appeal after months of price adjustments. The bank's analysts noted in their latest market report that while they had trimmed gold positions earlier in the year, the metal is again showing attractive qualities for investors.

The recent rebound toward $4,500 per ounce follows a significant pullback driven by the US-Israel-Iran conflict and rising expectations of Federal Reserve rate hikes. Meanwhile, volatility levels have normalized, speculative positioning has climbed back above its two-year average, and the put/call ratio for the gold ETF GLD has dropped to a six-month low, signaling that bullish sentiment is on the mend.

High interest rates and a strong US dollar continue to pose traditional headwinds for gold, but Societe Generale argues that most of the market's repricing of the Fed's hawkish stance has already been completed. As a result, the risk-reward profile for gold is improving. The bank maintains its strategic bullish outlook on the metal, viewing it as a crucial tool for navigating currency and policy uncertainty.

Societe Generale points to a notable institutional shift in the gold market since 2022. Even with positive real yields persisting, gold has managed to hold near historically high levels, defying the significantly lower prices implied by traditional models. Structural factors, including ongoing central bank purchases, de-dollarization trends, geopolitical uncertainty, and sovereign debt concerns, appear to be establishing a higher floor for prices, limiting the downside impact of elevated real interest rates.

Since mid-last year, market pricing for Fed policy has shifted focus from additional monetary easing to whether the central bank might hike rates once or twice more. This change has pushed two-year Treasury yields back above 4% and supported a stronger dollar. Yet despite these conventional headwinds, gold prices remain notably higher than mid-2025 levels. Societe Generale's analysts suggest that a larger inflation shock and a more aggressive Fed response would be needed to trigger another major repricing of rates. With most of the hawkish adjustment already reflected in financial markets, gold's downside risks appear increasingly limited.

The sustainability of gold's rally remains tied to Fed policy expectations. Bets on possible rate hikes were a major source of pressure during the metal's sharp correction in spring and early summer. Last week, after hawkish comments from Fed Chair Kevin Warsh at the Jackson Hole central bank symposium, those expectations intensified further. Warsh reiterated that policymakers remain focused on bringing inflation back to the central bank's 2% target. However, Societe Generale believes there are limits to how much tightening the Fed can ultimately deliver. Its economists expect rates to remain unchanged through 2027 under a base-case scenario, though they acknowledge that policymakers could still hike once this year if inflation persists. The bank sees a higher probability of a rate move in September or December than in October.

Persistent inflation risks also factor into Societe Generale's recommendation to retain a strategic allocation to gold. The bank argues that new US tariffs, accelerated investment in artificial intelligence and infrastructure, energy price volatility, and persistently high fiscal deficits in developed economies are creating a more inflationary environment than current financial market expectations suggest. At the time of the report, markets were only pricing in modest additional Fed tightening. Even under those hike expectations, monetary policy remains insufficient to align with the Atlanta Fed's Taylor rule model, implying inflation risks could still be underestimated.

Beyond the macro environment, gold's demand structure is also evolving. Although ETF inflows have slowed noticeably this year, they remain positive. At the same time, lower market volatility is enhancing gold's appeal to long-term reserve managers, who differ from traders chasing short-term price momentum. This shift in demand composition could eventually help establish a more durable price foundation for gold. China continues to steadily increase its gold reserves, and diversification away from traditional reserve assets remains a structural priority for many emerging-market central banks. As speculative demand fades while official-sector buying stays strong, central banks are increasingly becoming a key anchoring force in the gold market. Historically, declining volatility itself has been an important buy signal for gold, and sustained central bank demand is expected to provide lasting support beneath prices.