UBS Strategists Predict Continued Gold Gains into 2025

UBS strategists expect gold to build on its gains heading into 2025. The bullion has remained steady around $2,650/oz this week, constrained by:

• The strength of the US dollar
• Rising US Treasury yields
• Improved risk appetite for US equities

Gold has risen 28% since the start of the year, outperforming the S&P 500 equity index.

In a note published Wednesday, UBS strategists highlighted several catalysts expected to continue driving gold prices up next year. These include:

• Central banks’ continued accumulation of gold as part of diversification strategies.
  According to the International Monetary Fund (IMF), global central banks’ net gold purchases in October were the highest monthly level recorded this year. UBS has revised its forecast for official sector gold purchases to 982 metric tons for 2024, up from a previous estimate of 900 metric tons. While this is below the levels of the past two years, it marks a significant increase compared to the post-2011 average of around 500 metric tons.
• Investor demand for gold as a safe portfolio hedge, influenced by:
  • Uncertainties regarding US President-elect Donald Trump's policy agenda
  • Ongoing conflicts in Ukraine and the Middle East
  • Anticipated inflows to gold exchange-traded funds (ETFs)
• Lower interest rates, with UBS forecasting the Federal Reserve to reduce rates by 25 basis points on Wednesday, further easing expected next year. This reduces the opportunity cost of holding non-interest-bearing gold.
• A weaker US dollar, prompted by lower rates and concerns over US debt, making gold more affordable for non-dollar investors.

UBS remains bullish on gold for the coming year, projecting prices to reach $2,900/oz by the end of 2025. They recommend a 5% allocation within a USD-based balanced portfolio as a diversifier.

Looking ahead, UBS also sees growth potential in copper and other transition metals due to increasing investments in power generation, energy storage, and electric transportation.