Driven by expectations of a Federal Reserve interest rate cut, gold prices are on track for a remarkable fourth consecutive weekly gain, reaching an impressive new all-time high. This week, gold prices approached $3,650 per ounce, marking a weekly increase of approximately 1.7%. Silver also showed significant strength, breaking above $42 per ounce to achieve its highest level since 2011.
Recent data revealed a decline in consumer confidence, with the index dropping to its lowest level since May. Additionally, long-term inflation expectations have risen for the second consecutive month, intensifying concerns about the overall economic landscape and inflationary pressures. As a result, traders have substantially increased their bets on an imminent Federal Reserve rate cut, supporting gold’s performance in a low-interest-rate environment, where it typically thrives as a non-yielding asset.
Since the beginning of the year, gold prices have skyrocketed nearly 40%, making it one of the top-performing commodities and surpassing major stock indices, including the S&P 500. This rally has been fueled by robust central bank purchases, ongoing geopolitical uncertainties, and significant inflows into exchange-traded funds (ETFs). Notably, gold has not just set a new nominal record but has also surpassed its inflation-adjusted peak from 45 years ago. As of Thursday, global gold ETF holdings witnessed an increase of nearly 17 tons in just one week.
UBS Group has raised its gold price forecast for the end of 2024 from $3,500 per ounce to $3,800 and anticipates it could reach $3,900 by mid-2026. The bank attributes this optimistic outlook to several factors, including declining interest rates, a weaker U.S. dollar, and consistent growth in ETF holdings. The persistent weakness of the dollar has amplified gold’s appeal as a hedge, while the prospect of further declines in U.S. policy rates enhances its attractiveness. Moreover, UBS has revised its price forecast for the end of 2025 to $3,800 and mid-2026 to $3,900, citing a Fed policy shift towards a more accommodative stance and geopolitical risks that add pressure to the dollar.
Additionally, UBS has adjusted its estimates for gold ETF holdings, predicting total holdings to surpass 3,900 tons by the end of 2025, nearing the record level reached in October 2020. The firm maintains a bullish position on gold and recommends a mid-single-digit percentage allocation to gold within investment portfolios. It emphasizes that ongoing geopolitical tensions, divergences in U.S. policy, and continued central bank purchases provide medium- to long-term support for gold prices. Global central bank gold purchases are projected to reach between 900 to 950 tons this year, slightly below last year’s near-record level of over 1,000 tons but still considered strong. However, UBS warns that if inflation surpasses expectations and compels the Fed to reverse course and raise rates, it could pose a significant risk to gold prices.
