Gold has fulfilled its role, delivering solid returns and diversification benefits in an uncertain world. However, one international bank suggests that increasing market volatility indicates it is time to moderately reduce exposure to the precious metal.

In its updated multi-asset portfolio strategy for the second quarter, Société Générale announced it is no longer overweight on gold for the first time since 2022. The French bank has adopted a more balanced stance, reducing its gold allocation from 10% in the first quarter to 7%.

Despite cutting its gold exposure, the bank remains optimistic about the metal, maintaining its year-end price target of $6000 per ounce.

Overall, Société Générale stated it is seeking to build a more balanced portfolio by adjusting equity exposure and trimming it by 5%, partly due to establishing broader positions within the commodities sector.

The bank's most significant adjustment was increasing its global commodities exposure from zero in the first quarter to 8%. Analysts noted they see substantial potential in energy markets.

"When adjusting the portfolio, we are now paying more attention to long-term strategic forces. We have increased our commodities allocation and further broadened our equity exposure beyond U.S. tech stocks," the analysts said. "Commodities are central to our focus on 'sovereign' strategies. Even if the Middle East conflict ends, oil prices are unlikely to return to our previous expectation of $55 per barrel. Under our new scenario, Brent crude is projected to fall to $77 per barrel in Q2 2026 and $68 in Q4 2026, but will begin rising in the medium term as U.S. production peaks and OPEC regains market share. Copper continues to be supported by long-term electrification and data center demand."

Analysts indicated that gold's volatility was the primary factor behind the portfolio adjustment. The bank added that it expects gold to be one of the most volatile assets over the next 12 months.

"In the current risk-off environment driven by the Middle East conflict, gold has not fully offset weak performance from equities within the portfolio. At the same time, gold's short-term volatility has risen sharply, surpassing that of other major asset classes. If we observe gold's correlation characteristics, its relationship with most major asset classes is primarily positive," the analysts noted. "For volatility-controlled portfolios, the recent rise in gold's volatility, combined with its positive correlation with other assets, presents a headwind."

Regarding equities, the French bank has reduced its exposure to U.S. stocks, global emerging markets, and Chinese A-shares, while increasing its allocation to European equities excluding the UK.

The bank maintains a 25% allocation to government bonds, 5% to corporate bonds, and holds a 5% cash position.

"Growing skepticism about the sustainability of the AI theme is why we are underweight U.S. equities and favor an equal-weight S&P 500 allocation to reduce concentration and capture broader leadership," the analysts commented. "We remain overweight Europe as the region benefits from a solid cyclical recovery."