UBS analysts have reiterated their optimistic view on gold this week, emphasizing its role as a hedge against growing macroeconomic and geopolitical uncertainties.
Gold’s Performance and Value
This year, gold has seen a significant increase of 23%, reaching unprecedented spot prices. UBS attributes this surge to various factors including the anticipation of lower US yields and the ongoing trend of USD diversification by central banks.
It is recommended by UBS analysts for investors to include approximately 5% of gold in a balanced USD portfolio. They note that historically, gold has outperformed equities in times of heightened volatility, which has been evident in recent months.
Market Resilience
Despite the US CPI release leading to reduced expectations for substantial Federal Reserve rate cuts, gold has shown resilience, especially with the support from rate cuts by the European Central Bank.
When there was a brief dip in prices following an unexpected rise in US core inflation, UBS viewed it as a temporary fluctuation.
Future Outlook and Demand
The bank’s mid-2025 target for gold remains at USD 2,700/oz, driven by the increasing demand from gold ETFs. In August, physically-backed gold ETFs experienced their fourth consecutive month of inflows, prompted by heightened safe-haven demand and a cooling US labor market.
UBS highlighted the strong inflows in North America and the positive trend in Asia, particularly in India, due to favorable tax and budget changes.
UBS’s Stance
UBS maintains its position as “Most Preferred on gold” in its global asset allocation strategy. Considering its hedging capabilities, the bank stresses that gold remains a crucial component of a diversified investment strategy, especially amidst ongoing global economic uncertainty.
Additional insight:
Gold’s appeal as a safe-haven asset tends to increase during times of uncertainty and market turmoil. Its intrinsic value and limited supply make it an attractive option for investors looking to protect their portfolios from potential downturns. This historical trend of gold outperforming equities during times of volatility adds to its allure as a hedge against economic instability. Furthermore, the global economic landscape’s ongoing uncertainties, such as trade tensions and geopolitical risks, continue to fuel interest in gold as a reliable investment option.
