(Kitco News) – After a strong rebound last week, gold is seeing further declines on waning December rate cut expectations, but the yellow metal still has strong tailwinds which should lift prices to $2,900 per ounce next year, according to commodities analysts at UBS.
The analysts noted that spot gold’s Monday price decline effectively erased Friday's rally. “The pullback comes amid profit-taking after the metal's five-day winning streak and on President-elect Trump's pick of Scott Bessent for Treasury secretary,” they said.
“Bessent is viewed as a ‘fiscal hawk,’ so his choice may temper federal deficit and execution concerns over the incoming president's plans,” the analysts added. “December rate-cut expectations have continued to slide, with the CME Fedwatch tool showing money markets are pricing a 56% chance of a December rate cut, down from 62% last week.”
UBS believes that continued volatility in gold prices is to be expected “amid competing signals on inflation, rates, geopolitics, and upcoming US trade policy.”
“We see room for more gains in gold prices, with a target of USD 2,900/oz by end-2025,” they said. “Gold remains a useful hedge against geopolitical tensions and fiscal concerns, in our view.”
UBS Precious Metals Strategist Joni Teves said in late October that gold still has strong support, and even with prices near $2,800 per ounce at the time, investor allocations remained relatively light.
“We remain bullish on gold here,” she said. “We think the outlook is quite positive heading into next year. Easing by the Fed continues to be supportive for gold, and fundamentals continue to be positive as well. We expect central bank buying to continue, and physical demand we think will remain resilient even as prices continue to rally.”
UBS also believes investors still have plenty of room to build gold positions. “Generally, we think the market is still underinvested in gold, and therefore there's room for more allocations to be built up,” Teves added.
Spot gold has turned positive on the session and is trading around $2,628.84 per ounce for a gain of 0.12% on the day, and even after its post-election slide, the yellow metal remains up 27.4% in 2024.
