Investing.com – UBS strategists expect gains by 2025.
Bullion held steady around $2,650/oz this week, capped by a stronger US dollar, rising US Treasury yields and improved risk appetite in US equities.
Gold is up 28% year-to-date, outperforming the equity index.
In a note on Wednesday, UBS strategists highlighted several catalysts that are likely to continue to push gold prices higher next year.
These include gold hoarding by central banks, which UBS believes will continue into 2025 as part of their diversification strategy.
Net gold purchases by global central banks in October were the highest monthly level recorded this year, data from the International Monetary Fund (IMF) showed. UBS revised its forecast for official sector gold purchases to 982 metric tons in 2024 from a previous estimate of 900 metric tons.
Although this figure is lower than the last two years, it represents a significant increase from the post-2011 average of around 500 tonnes. Strategists believe this trend will continue and say
“We think strong buying momentum will continue amid dedollarization efforts and expect central banks to buy another 900 million tonnes of gold or more in 2025,” wrote strategists led by Mark Hefele.
Investor demand for gold as a portfolio hedge is also likely to increase. While US President-elect Donald Trump’s policy agenda has been widely discussed, uncertainty remains regarding fiscal, trade and geopolitical developments.
Along with ongoing conflicts in Ukraine and the Middle East, UBS believes these factors will increase demand for safe-haven assets, which will increase inflows into gold exchange-traded funds.
Moreover, low interest rates are another factor that is likely to boost gold prices next year. UBS forecasts the Federal Reserve will cut rates by 25 basis points on Wednesday, with further easing expected next year.
“This should reduce the possibility of holding the metal, which is interest-free,” the strategists explained.
A weaker US dollar, driven by low rates and concerns about the trajectory of the US debt, is likely to increase demand for gold, making it more affordable for non-dollar investors.
Thus, UBS remains bullish on gold over the next 12 months, predicting prices to reach $2,900/oz by the end of 2025.
“We recommend allocating around 5% to a USD-based balanced portfolio as a diversifier,” the strategists said.
Going forward, they also see growth potential for other transition metals, driven by increased investment in power generation, energy storage and electric transportation.