Two Major Reasons for Support! UBS Raises Gold Price Forecast to $3,700 for Next Year

The international gold price has recently pulled back to around $3,319. However, UBS remains optimistic about gold, estimating that it could still reach $3,500 per ounce by the end of 2025. The bank has also raised its gold price targets for the end of March and June next year to $3,600 and $3,700 per ounce, respectively, and set a target of $3,700 per ounce for the end of September next year.

UBS analysis shows that gold has outperformed all asset classes this year, with a year-to-date increase of 28%, surpassing stocks, bonds, G10 currencies, and even Bitcoin. Recently, due to ongoing changes in trade conditions, continued Russia-Ukraine peace talks, and weak U.S. labor data, the gold price has fluctuated within a narrow range. Although these developments have led to a tug-of-war between bulls and bears.

Nevertheless, UBS remains bullish on gold in the medium term, citing two main factors: the gradually declining opportunity cost of holding gold and the continued rise in gold demand. UBS believes that the impact of tariffs and immigration policies has not yet been fully reflected in U.S. inflation data, and inflation remains sticky. On the other hand, growth below trend levels will prompt the U.S. Federal Reserve (Fed) to restart interest rate cuts, and further weakness in the U.S. dollar will support gold prices.

As inflation and growth factors drive down U.S. real yields, the opportunity cost of holding gold, a non-yielding asset, will decrease, which will be favorable for gold prices.

Moreover, gold demand will continue to climb. UBS stated that by 2026, the major trends of de-dollarization, the Fed's independence, and U.S. fiscal sustainability, particularly the Supreme Court's ruling on former President Trump's reciprocal tariffs, will remain focal points for investors and further boost investment demand for gold. Recent data from the World Gold Council shows that inflows into gold exchange-traded funds (ETFs) in the first half of this year reached their highest level for the same period since 2010.

In light of this, UBS has raised its full-year gold ETF demand forecast from 450 tonnes to nearly 600 tonnes, with current holdings still below previous highs. At the same time, UBS also estimates that central bank purchases of gold will remain strong, likely only slightly below last year's near-record levels. UBS currently forecasts that global gold demand will increase by 3% to 4,760 tonnes in 2025, the highest since 2011.

Due to these reasons, UBS continues to be optimistic about gold's performance. It has raised its baseline gold price target for the end of March 2026 from $3,500 to $3,600 per ounce, and the baseline target for the end of June from $3,500 to $3,700 per ounce, while setting a target of $3,700 per ounce for the end of September next year. The target for the end of 2025 remains unchanged at $3,500 per ounce. For those interested in investing in gold, a allocation of around 5% is recommended.