The Federal Reserve is set to pivot. What is uncertain is the timing and the pace at which Fed will have to reverse the rate hikes. Gold is the favourite asset for strategists at Société Générale ahead of a Fed pivot.

Prefer gold over long-duration equities

“The obvious question is ‘will the Fed pause its rate hikes?’ and the answer is almost certainly yes. We think the likelihood of the Fed pivoting and reversing the rate hikes is a likely scenario at the earliest in Q2 next year when we expect the core inflation will already start falling below 4%.”

“To position for the Fed pivot, instead of buying US equities, we think defensive assets such as gold are preferable, as we expect them to outperform first. The main reason is that the earnings growth outlook for US stocks will likely get worse in 1H23 on back of a strong USD, a weaker oil price, and the likelihood of continued economic slowdown.” 

“In the short-term, gold could continue to suffer from higher real yields, themselves pushed up by further Federal Reserve rate hikes.”

“We may think of increasing our gold exposure further, as even our most bearish forecast, at $1,550, is not too far off current levels.”

 

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