Schroders boosts gold view on central bank demand, holds pro-cyclical equity stance

Schroders' upgrade of gold adds to a growing roster of asset managers highlighting central bank demand as the structural support for prices, even after the metal's sharp rally this year, implying that institutional flows, not retail momentum, are driving the medium-term outlook. The firm's choice to combine that with ongoing equity and technology exposure indicates confidence that the current cycle still has room to extend, although its own admission that valuations are in extended territory points to a market depending more on growth and earnings delivering without shortfalls. The tactical move toward US Treasuries, based on attractive real yields, suggests Schroders sees limited near-term inflation risk, a stance that could quickly come under pressure if price data surprises on the upside. Key swing factors for how long this constructive view lasts are AI-related earnings and inflation readings.

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Earlier coverage:

• TD Securities points to gold risk reaching 4200 in the near term, with a target of 5350 by 2027

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Schroders is wagering that the cycle still has space to continue, with gold now included as a buffer against the risks it acknowledges are accumulating.

In summary:

• Schroders has grown more positive on gold, raising its outlook due to central bank purchases that provide support.
• The firm states that gold stays appealing over the medium term despite its recent price increases.
• Schroders keeps a broadly constructive, pro-cyclical equity stance, underpinned by robust global growth and strong corporate profits.
• Elevated valuations of AI stocks, high leverage, and concentrated markets are noted as cautionary factors.
• The firm has strengthened its preference for technology shares and broadened its German equity positions, focusing on industrial and defense names.
• Schroders holds onto natural resource exposure through a combination of global mining and energy companies.
• The firm is tactically upbeat on government bonds, especially US Treasuries, citing appealing real yields.
• Main risks to the constructive outlook consist of accelerating inflation, a notable growth downturn, or fading confidence in AI investment returns.

Schroders has turned more bullish on the argument for holding gold, raising its assessment of the precious metal based on supportive central bank buying, despite prices having already risen sharply this year. The UK-based wealth and investment firm issued this view as part of a wider multi-asset note that keeps a constructive, pro-cyclical positioning across its portfolio, especially toward equities.

The multi-asset investment team at the firm cited resilient global growth and corporate profits as the basis for its overall stance, while noting that a robust rally since late July has pushed market expectations into what it calls extended territory. It flagged high valuations in AI stocks, high leverage, and heavy market concentration as causes for caution. Nonetheless, the firm stated that the lack of any significant worsening in growth dynamics makes a pro-cyclical stance justified for the time being.

Regarding equities, Schroders has strengthened its preference for technology and expanded its holdings of German equities, favoring industrial and defense names it considers attractive in that market. The firm has also maintained natural resource exposure, holding a mix of global miners and energy producers as part of its broader cyclical allocation.

Tactically, Schroders is also upbeat on government bonds, citing attractive real yields as the reason for a tactical allocation to US Treasuries, where inflation-adjusted returns look favorable compared to other fixed-income choices. That view accompanies the gold upgrade rather than conflicting with it, as the firm sees both as complementary methods to capture yield and provide a buffer against the risks it identifies in its own equity stance. On gold specifically, Schroders stated that the case depends less on near-term price momentum and more on ongoing central bank purchases, which it expects to continue supporting the metal over the medium term regardless of how much it has already risen.

Schroders was clear about what could undo its currently constructive position. Accelerating inflation, a significant deterioration in the growth outlook, or a drop in investor confidence that AI-related investments will deliver on their promised returns were all listed as the main risks to the firm's positioning. With valuations already extended by its own admission, any of those triggers could test how lasting the current pro-cyclical bias turns out to be.