Investing.com — Gold has recently performed as expected ahead of the U.S. election, but analysts at Societe Generale (OTC:) suggest the precious metal could take a short-term breather.
Nevertheless, they see robust long-term factors that reinforce the yellow metal’s unique role in financial markets.
“Gold is the ultimate ‘unknown unknown’ commodity,” Societe Generale stated, explaining that its primary value lies in its role as a hedge against unforeseen and unpredictable risks.
Unlike most commodities, gold’s market dynamics are not affected by typical supply and demand fundamentals.
“In general, the market is neither seasonal in terms of supply nor demand, and is often considered the least commodity-like market,” the company said.
According to Societe Generale, gold’s limited industrial use sets it apart from other resources, highlighting its status as a store of value with a unique monetary role.
“It is this monetary role that makes gold an alternative to fiat currency and a stable store of value in unstable times,” Societe Generale explains.
The bank highlighted several factors supporting gold’s current bullish momentum: continued fiscal profligacy in the US, potential reversals in interest rate policy, the weaponization of the US dollar in sanctions enforcement and escalating geopolitical risks.
They note that investor sentiment has changed significantly, with money managers, central banks and ETFs simultaneously turning bullish on gold over the past quarter.
Societe Generale highlighted that “sentiment on gold has converged with few sellers in sight,” reinforcing its appeal as a hedge in uncertain times.
While a temporary lull in gold’s rally may be imminent, the company believes its fundamental strengths and role as a hedge against “unknown unknowns” ensure its continued relevance in portfolios.
