UBS sees gold extending gains into 2025, forecasts $2,900/oz price target

Gold prices held steady this week at around $2,650/oz, weighed by recent US dollar strength, rising Treasury yields, and improving investor sentiment toward US equities. Since hitting an all-time high at the end of October, the metal has retreated 4.7%. However, UBS remains bullish on gold’s outlook, highlighting its strong performance—up nearly 29% year-to-date—which has outpaced the S&P 500.

UBS expects gold to build on these gains, forecasting prices to reach $2,900/oz by the end of 2025, supported by a combination of central bank demand, rising investor interest, and a lower rate environment.

Central Banks to Drive Continued BuyingGlobal central banks remain a significant driver of gold demand as they diversify reserves amid broader de-dollarization trends. UBS notes that October’s net gold purchases, as reported by the International Monetary Fund, reached their highest monthly level of the year. UBS revised its 2024 estimate for central bank gold purchases to 982 metric tons—up from 900mt—citing underreporting trends in official data. While still below the highs of the past two years, this figure is a sharp increase from the 500mt average seen annually since 2011.

Looking ahead, UBS expects central banks to maintain strong buying momentum, projecting purchases of 900mt or more in 2025 as reserve diversification efforts continue.

Gold as a Key Hedge in an Uncertain ClimateInvestor demand for gold as a portfolio hedge is expected to rise amid ongoing geopolitical risks and policy uncertainty. UBS flags lingering concerns around the Russia-Ukraine conflict, tensions in the Middle East, and uncertainty surrounding US fiscal and trade policy under President-elect Donald Trump’s administration. These risks, coupled with Trump’s transactional policy approach, could increase inflows into gold-backed exchange-traded funds (ETFs) as investors seek safe-haven assets.

Lower Rates and a Weaker Dollar to Bolster GoldUBS sees further tailwinds for gold stemming from lower interest rates. The Federal Reserve is expected to continue easing monetary policy with a 25 basis point rate cut on Wednesday (US time), with more cuts anticipated in the year ahead. Lower rates reduce the opportunity cost of holding gold, which does not generate interest.

Additionally, UBS expects the US dollar to weaken over the medium term due to lower rates and growing concerns about the US government’s debt trajectory. As gold is priced in US dollars, a weaker dollar makes the metal more affordable for international investors, further boosting demand.

Beyond gold

Beyond gold, UBS also highlights opportunities in copper and other transition metals, citing rising global investment in power generation, energy storage, and electric transport as long-term demand drivers.

This article was written by Eamonn Sheridan at www.forexlive.com.