Gold prices have remained steady this week at approximately $2,650 per ounce, despite pressure from a strengthening US dollar, rising Treasury yields, and improving investor sentiment toward US equities. Since reaching an all-time high in late October, the precious metal has seen a 4.7% decline. However, UBS maintains a positive outlook on gold, noting that it has risen nearly 29% year-to-date, outperforming the S&P 500.
Looking ahead, UBS projects that gold will continue to rise, forecasting a price target of $2,900 per ounce by the end of 2025. The bank attributes this forecast to several key factors, including strong central bank demand, growing investor interest, and a favorable lower-rate environment.
Central Banks Drive Continued Gold Demand
Central banks remain a critical driver of gold demand as they diversify their reserves amid ongoing trends of de-dollarization. UBS highlights that October’s net gold purchases, as reported by the International Monetary Fund (IMF), marked the highest monthly level of the year. The bank has revised its 2024 estimate for central bank gold purchases to 982 metric tons, up from an earlier projection of 900 metric tons, citing underreported official data. Although this figure is still below the record levels seen in recent years, it represents a significant increase compared to the 500 metric tons annually averaged since 2011.
UBS expects central banks to sustain their gold-buying momentum, forecasting purchases of at least 900 metric tons in 2025 as they continue to diversify their reserves.
Gold as a Safe-Haven Asset Amid Geopolitical and Economic Uncertainty
Investor demand for gold as a hedge against economic and geopolitical risks is expected to rise. UBS points to persistent concerns over the Russia-Ukraine conflict, ongoing tensions in the Middle East, and uncertainty surrounding US fiscal and trade policies under the incoming administration of President-elect Donald Trump. These risks, combined with Trump’s transactional approach to foreign policy, could drive increased inflows into gold-backed exchange-traded funds (ETFs) as investors seek safe-haven assets.
Lower Interest Rates and a Weaker Dollar to Support Gold Prices
UBS also foresees additional support for gold from lower interest rates. The Federal Reserve is expected to implement a 25-basis-point rate cut on Wednesday (US time), with further reductions anticipated later in the year. Lower interest rates decrease the opportunity cost of holding gold, which does not generate interest income.
Furthermore, UBS predicts that the US dollar will weaken over the medium term due to lower interest rates and growing concerns about the US government’s debt trajectory. As gold is priced in US dollars, a weaker dollar will make the metal more affordable for international investors, further boosting demand.
Opportunities Beyond Gold: UBS Sees Potential in Copper and Transition Metals
In addition to its bullish outlook on gold, UBS highlights opportunities in other commodities, particularly copper and transition metals. The bank points to increasing global investment in power generation, energy storage, and electric transportation as long-term demand drivers for these metals.
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