UBS Ups Gold Forecast: A Deeper Dive into the Driving Forces

UBS strategists have revised their spot gold price forecasts upward for 2026, believing the tailwinds that propelled gold to record highs this year will remain in place. While maintaining their end-2025 gold target at $3,500 per ounce, the bank adjusted its near-term outlook. They raised the end-of-March gold target from $3,500 to $3,600 and the end-of-June target from $3,500 to $3,700, adding a new end-of-September target of $3,700.

Gold Defies Volatility: A Look at the Backdrop

This adjustment comes after a period of volatility in gold prices. In the first half of the year, gold saw safe-haven inflows due to trade tensions sparked by tariffs. However, the momentum slowed later. In August, investors focused on the potential for US tariffs on gold imports, which the White House later dismissed as misinformation. Additionally, the market awaited a breakthrough in the Russia-Ukraine conflict, which could reduce global demand for safe-haven assets.

Why UBS Sees Further Upside for Gold

Despite these challenges, UBS strategists believe gold has room to run, driven primarily by US-centric factors. They noted in their recent report that sticky US inflation, below-trend economic growth, Federal Reserve policy easing, and further US dollar weakness would all support gold prices.

The Impact of Real Interest Rates

The analysts explained that higher inflation and slower economic growth would depress real interest rates in the US, making gold more attractive as it doesn't offer a fixed yield. They added that ongoing concerns about the growing US fiscal deficit and Federal Reserve independence could also drive gold demand. Declining real rates reduce the opportunity cost of holding gold.

The Central Bank Factor

In April, UBS also revised its gold forecasts upward due to continued strong demand from central banks. The bank's strategists noted this trend would likely remain robust, albeit less intense than last year's near-record buying levels. Global central banks have been significant buyers of gold in recent years, hedging against inflation and diversifying their portfolios away from policy-sensitive assets. China, India, and Turkey are among the biggest gold buyers. Last year, gold surpassed the Euro to become the world's second-largest reserve asset after the US dollar. This increased central bank interest reflects a broader shift in the global financial landscape, with countries seeking to reduce reliance on traditional reserve currencies and diversify their holdings.

Understanding Gold's Role as a Hedge

Gold's enduring appeal stems from its historical role as a store of value and a hedge against economic uncertainty. Unlike fiat currencies, gold has intrinsic value and cannot be printed at will by governments. This limited supply makes it a valuable asset during times of inflation or currency devaluation. Investors often turn to gold as a safe haven when geopolitical risks rise, or when stock markets become volatile. Its performance is often uncorrelated with other asset classes, making it a useful tool for portfolio diversification. Analyzing historical trends in gold prices can provide insights into its behavior during different economic cycles, but it's essential to remember that past performance is not indicative of future results. Ultimately, understanding the fundamentals that drive gold demand, such as inflation expectations, interest rate movements, and geopolitical events, is crucial for making informed decisions regarding gold investments.