(Kitco News) - The gold market continues to struggle to attract investor interest as prices drop sharply back below $4,000 an ounce; however, the market could see a bit of a reprieve in the new year due to index rebalancing.
In a note Thursday, commodity analysts at Société Générale said the 13% drop in precious metals prices this year could unleash more than $3 billion in buying as funds rebalance their exposure to broader commodity benchmarks, including the Bloomberg Commodity Index (BCOM).
The French bank’s analysts said that gold is expected to be the biggest beneficiary of the annual rebalancing, which will take place between January 8 and 14.
At the same time the analysts expect that silver could see another $2.5 billion in inflows.
The analysts explained that the expected buying is largely a mechanical consequence of this year's commodity market performance. While gold and silver prices have struggled, energy prices have surged amid the ongoing conflict in the Middle East, creating significant imbalances in commodity index weightings.
As a result, funds tracking these benchmarks will need to reduce their exposure to outperforming commodities and increase allocations to underperforming assets to bring their portfolios back in line with their target weights.
The bank estimates that gold's weighting in BCOM will need to increase by roughly three percentage points from current levels, while its weighting in the S&P GSCI will rise by about one percentage point.
Although the rebalancing is expected to generate significant buying interest, the analysts noted that the impact will be concentrated in specific futures contracts.
Société Générale estimates that index funds will sell approximately $17.2 billion worth of February gold futures while purchasing roughly $20.5 billion in April futures, resulting in net inflows of about $3.3 billion.
The bank also expects buying in April gold futures to represent approximately 56% of typical daily trading volume during the rebalancing period, highlighting the potential for concentrated buying pressure.
Despite gold’s struggles, analysts note that investor interest has remained fairly resilient. SocGen noted that the expected support for gold comes as broader investor interest in commodities has increased significantly this year.
According to the analysts, assets tracking the two major commodity indexes started 2026 at approximately $147 billion, climbing above $200 billion earlier in the year before retreating to around $160 billion in November.
The bank estimates that BCOM-linked assets currently total approximately $112 billion, compared with $47 billion tracking the GSCI.
Looking beyond January's rebalancing, the analysts noted that precious metals have also become a more significant component of broader commodity investment portfolios.
Within the GSCI, precious metals' target weighting has increased from 4.1% in 2023 to 10% for 2027, supported by stronger gold prices over the longer term and improving market liquidity.
In September, the French bank published an updated multi-asset portfolio strategy for the fourth quarter and said it is maintaining a 10% position in gold and a 10% position in broader commodities, unchanged from the third quarter.
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