Introduction to Gold Prices
Driven by expectations of a Federal Reserve interest rate cut, gold prices are poised for a fourth consecutive weekly gain, reaching a new all-time high. This week, gold approached $3,650 per ounce, with a weekly increase of approximately 1.7%. Silver also strengthened, breaking above $42 per ounce to hit its highest level since 2011.
Factors Influencing Gold Prices
The consumer confidence index released on Friday fell to its lowest level since May, while long-term inflation expectations rose for the second consecutive month, exacerbating market concerns about the economy and inflation. Traders have increased their bets on an imminent Fed rate cut. As a non-yielding asset, gold typically performs well in a low-interest-rate environment. Central bank purchases, geopolitical uncertainties, and inflows into ETFs have collectively fueled this rally.
Gold Performance and Forecasts
Since the beginning of the year, gold prices have risen nearly 40%, making it one of the best-performing commodities and outpacing major stock indices such as the S&P 500. Gold has not only set a nominal record but has also surpassed its inflation-adjusted peak from 45 years ago. As of Thursday, global gold ETF holdings increased by nearly 17 tons in a single week. UBS Group has raised its gold price forecast for the end of 2024 from $3,500 per ounce to $3,800 and expects it to reach $3,900 by mid-2026.
UBS Forecasts and Recommendations
The bank cited declining interest rates, a weaker U.S. dollar, and increased ETF holdings as core supporting factors. The persistent weakness of the dollar has boosted demand for gold as a hedge, while the potential decline in U.S. policy rates further enhances its appeal. UBS also raised its price forecast for the end of 2025 to $3,800 and its mid-2026 forecast to $3,900, citing the Fed’s shift toward a more accommodative monetary policy and geopolitical risks putting pressure on the dollar. UBS maintains a bullish stance on gold, recommending a mid-single-digit percentage allocation to gold in investment portfolios.
Risks and Future Outlook
UBS also adjusted its estimates for gold ETF holdings, projecting total holdings to exceed 3,900 tons by the end of 2025, nearing the record set in October 2020. Global central bank gold purchases are expected to reach 900–950 tons this year, slightly below last year’s near-record level of over 1,000 tons but still within a strong range. However, UBS also cautioned that if inflation exceeds expectations and forces the Fed to pivot to rate hikes, it would pose a major risk for gold.
Conclusion
In conclusion, gold prices are expected to continue rising due to expectations of a Federal Reserve interest rate cut, central bank purchases, and geopolitical uncertainties. With UBS raising its gold price forecast and maintaining a bullish stance, investors may consider allocating a portion of their portfolio to gold. However, it is essential to be aware of the potential risks, such as inflation exceeding expectations and forcing the Fed to pivot to rate hikes. As the global economy continues to evolve, it will be interesting to see how gold prices respond to these changes.
