Investing.com — has been on a rally in recent months, driven by a combination of macroeconomic factors and geopolitical uncertainty.
According to analysts at UBS, this upward trend is expected to continue as key market conditions continue to evolve. Key catalysts for this ongoing rally include impending interest rate cuts, a weakening US dollar and lingering geopolitical risks.
UBS sees gold as a preferred hedge against these uncertainties, suggesting the strong performance is far from over.
One of the main factors supporting gold’s rally is the expectation of future interest rate cuts by central banks, especially the US Federal Reserve.
As inflationary pressures subside and concerns about economic growth increase, central banks are expected to shift to looser monetary policy.
“We continue to believe that a shift of 150 to 200 basis points in short-term interest rates in developed economies over the next 12 to 18 months will lead to greater investment in the year ahead,” the analysts said.
Lower interest rates tend to make gold more attractive to investors because it lowers the opportunity cost of holding non-yielding assets like gold.
With the US Federal Reserve signaling possible interest rate cuts, gold’s safe-haven appeal is likely to strengthen, encouraging further inflows into the market.
The decline of the US dollar is another critical factor in gold’s recent performance. Historically, the price of gold and the US dollar have had an inverse relationship.
As the dollar weakens, the price of gold in other currencies becomes more affordable, increasing global demand.
UBS expects the US dollar to continue to lose strength due to monetary easing and a weakening US economy. This weakening trend is expected to increase gold’s appeal, especially in emerging markets, where currencies are under pressure due to high US interest rates.
In addition to macroeconomic factors, UBS analysts point to persistent geopolitical uncertainties as a key driver of gold prices.
Geopolitical risks, such as the conflict in Ukraine and tensions in the Middle East, are expected to continue after the US presidential elections.
These uncertainties reinforce gold’s role as a safe haven, especially for investors seeking protection from market volatility.
UBS believes these geopolitical factors are likely to fuel demand for gold.
This is reflected in increasing inflows into gold-backed Exchange Traded Funds (ETFs), which have risen steadily in recent months.
Investment demand, especially through gold ETFs, is expected to be a key driver of gold’s next rally. UBS notes that inflows into these funds have accelerated, reversing previous outflows and narrowing the decline since the start of the year.
As investors become more risk-averse in light of the uncertain global economic outlook, gold ETFs are expected to attract increasing interest.
Another critical source of gold demand has been central banks, which continue to diversify their reserves against the US dollar. This trend, also called ‘de-dollarization’, is expected to further increase the gold price.
Analysts at UBS suggest central bank gold purchases are likely to remain robust as countries look to reduce their dependence on the US dollar amid heightened global tensions.
UBS predicts that gold prices could reach new highs in the coming year, with a target price of $2,700 per ounce by mid-2025. This outlook is driven by the convergence of interest rate cuts, a weakening dollar and persistent geopolitical risks.
The brokerage sees the potential for gold to outperform other asset classes, especially as traditional stocks face headwinds from a cooling global economy.
