UBS continues to be bullish on gold: multiple positive factors drive the market, and gold prices are still expected to hit new highs this year

On Monday Eastern Time, UBS Investment Bank expects that this year, the prices of gold and silver will reach new highs, as ongoing tensions in the Middle East, rising oil prices, and the potential decline in real interest rates all drive market demand for precious metals.

UBS precious metals strategist Joni Teves stated that the bank still believes gold prices will hit new highs this year, and in the medium to long term, prices may exceed their expected benchmark levels.

In a report on UBS’s outlook, Teves said, “We still believe that (gold) prices can recover from current levels and continue to reach new highs this year.”

Gold demand remains strong

Teves pointed out that the factors driving this gold rally remain stable—mainly thanks to the continuous expansion of demand from private investors and central banks. Amid increasing macroeconomic and geopolitical uncertainties, gold is gradually becoming a core component of investment portfolios.

Teves added that the current market consolidation offers investors an opportunity to build positions, as the market still appears to be underinvested.

She stated that if gold prices fall back to around $4,000 per ounce, it should be seen as a good opportunity to accumulate gold holdings.

“Even if the Federal Reserve remains on hold, if inflation rises, that also means real interest rates will decline,” she explained, with real interest rates defined as nominal interest rates minus inflation.

“If the Fed has to cut rates due to slowing economic growth, that would further compress real interest rates, which is often a bullish signal for gold.”

UBS also expects that despite recent price volatility raising concerns about potential gold reserve sales, demand from official sector entities will remain stable. Preliminary data from the World Gold Council shows that in the first quarter of this year, central banks’ purchases were still slightly higher than the same period last year.

Teves said that sovereign nation purchases have become an important support for gold, capable of absorbing supply, reducing liquidity, and alleviating macroeconomic pressures during periods of price volatility. They expect that investor capital flows driven by macro factors will continue to dominate short-term gold price movements, while official sector demand supports a broader upward trend.

She particularly highlighted the optimistic sentiment in Asian markets, noting that earlier this year, China’s gold exchange-traded funds (ETFs) experienced net inflows, and physical demand remained very strong.

Silver will follow gold’s trend

Regarding silver, UBS maintained an optimistic outlook, expecting that with ongoing supply shortages and improving investor sentiment, silver prices will rise along with gold.

Teves said, “We expect silver prices to follow gold prices higher. As gold prices continue to climb, silver prices should also reach new highs.”

UBS pointed out that, as investors increasingly view silver as a higher-risk, higher-reward alternative investment, silver’s performance may outperform gold. However, due to its higher volatility, investor holdings are still tactically oriented.

UBS analysts noted that strong physical demand from China, including replenishment and investment purchases, should continue to support market sentiment.

However, if global economic growth slows significantly, weakening industrial demand could pressure silver prices. Historically, the silver market has been in a supply deficit, supported by declining inventories and investment demand from China, India, and the Middle East.

UBS reaffirmed its annual targets: gold at $5,600 per ounce and silver above $100 per ounce.

In late January this year, gold briefly reached a record high of $5,600 per ounce. But after the outbreak of the Iran war, gold prices retreated sharply, and current trading prices are around $4,730 per ounce. Meanwhile, silver, which earlier this year hit a record high of $121 per ounce, is now trading above $86 per ounce.

(Source: Cailian Press)