Gold to surge to $2500, UBS predicts

As the price of gold climbed to a new all-time high on Monday, strategists at UBS said there were good reasons to expect the price to continue rising.

The rally of around 13% so far in 2024, as the market responds to geopolitical risks and the effect of renewed inflation risks on Federal Reserve rate expectations, has been unusual, said the UBS chief investment office team.

Surprisingly, the rally has evolved without support from the traditional source of exchange-traded funds, but still rallied faster and more forcefully than even bullish forecasters expected earlier in the year.

The “usual” ETF buyers have even remained net sellers, UBS noted, with ETF holdings of gold standing at a four-year low.

In contrast, central banks and China have been major buyers of gold, adding 64 metric tons and 132 metric tons to their coffers, respectively.

“We expect these buyers, who are less price sensitive, to continue accumulating gold in the months ahead,” said the UBS strategists.

On top of this, the ETF buyers are expected to wake up and join the gold rush.

“We expect gold ETF holdings to increase once the Federal Reserve starts cutting rates around mid-year, as these buyers tend to move more in sync with interest rate adjustments. This event could trigger another step-up in demand via ETFs.”

With this expected catalyst still ahead, UBS has lifted its forecasts, expecting gold to trade at US$2,300 per oz in June and at US$2,500 per oz at the end of 2024.

“Renewed price setbacks in the short term remain possible if US economic data delays Fed rate cuts, but so far these setbacks have been shallower than we had expected.”