UBS: Gold prices still do not reflect the true risks, and by 2026, they will increase by another 20% from current levels.

Ask AI · Why UBS, the Swiss banking giant, is still convinced that gold prices don’t reflect the true risks?

Source: Jintian Data

Even though gold has performed lacklusterly since the outbreak of the Iran war, UBS Group’s commodity analysts say that recalculated risks, interest-rate policy, inflation, and strong underlying demand will still drive this precious metal to rise to $6,200 per ounce by the end of 2026.

In a report released last Friday, the analysts noted that since the start of the Iran conflict, gold prices have been unable to break above $5,200 per ounce, and its so-called safe-haven buying has failed to materialize. “That stands in sharp contrast to last year’s 65% increase, when rising geopolitical risk played a supportive role among fundamental drivers such as falling real interest rates and concerns about debt,” they said. “Recent performance reflects historical behavior during such events, where investors seek liquidity and consider alternatives such as energy assets.”

“For example, after the outbreak of the Russia-Ukraine conflict in 2022, gold rose by 15%, but then fell by 15% to 18% following Fed rate hikes,” they wrote. “The same pattern occurred during the Gulf War and the Iraq War—prices rose by 17% and 19% respectively at the start of hostilities, but then pulled back as tensions eased.”

But this precious metal’s recent sideways consolidation has not shaken the Swiss banking giant’s conviction that gold will be up another 20% or more in 2026.

“We maintain our view that this year gold should rise to $5,900–$6,200 per ounce,” they said. “Gold is more of a hedge against the broad impacts of conflicts rather than a safe haven against direct threats of war. What gold mainly protects against are currency risks such as currency debasement, rising deficits, and an economic slowdown—risks that may be triggered by geopolitical conflicts.”

“In the short term, rising energy prices and inflation concerns have strengthened the U.S. dollar and have sparked worries about potential further rate hikes—both are headwinds for gold,” the analysts conceded. “But we expect central banks will be alert to inflation risks and will not rush into rate hikes.”

In addition, the longer the conflict between the U.S. and Iran lasts, the greater the risk of negative economic fallout, which could support safe-haven demand for gold.

“From a long-term perspective, gold is a standout tool for hedging against inflation. According to the Global Investment Returns Yearbook, since 1900, the real returns of gold and commodities have been positively correlated with inflation.”

UBS also noted that gold’s potential demand remains strong. “While ETF investors trimmed their gold positions slightly earlier this month, their recent holdings have shown greater stability, and hedge funds have also modestly increased their net gold positions. We believe that supported by continued central bank purchases of gold, increased investment activity, and the structural growth in demand for gold jewelry driven by rising Asian income, total gold demand may remain strong.”

Structural trends will continue to bolster gold’s appeal as well. “We expect that structural trends such as high government debt levels, central banks and global investors seeking to diversify away from holding U.S. dollars will support gold’s long-term outlook. Therefore, given that besides the risks of the U.S.-Iran conflict there are also macroeconomic and political uncertainties, we remain bullish on gold and believe this precious metal is still an effective tool for portfolio diversification. Investors who favor gold may consider allocating no more than 5% to gold in a diversified portfolio.”

On February 23, UBS analysts previously predicted that gold prices will ultimately reflect the full impact of the ongoing escalation of geopolitical tensions around Iran. Once the Fed’s easing path and the continuously rising overall market demand are taken into account, gold will rise by another $1,000 per ounce by June.