(Kitco News) – While gold prices have come off their pre-election highs, the combination of strong central bank demand, rising investor interest and a weaker U.S. dollar in the medium term should help the yellow metal post new all-time highs in 2025, according to UBS.
In their latest CIO gold update, UBS noted that even though prices have fallen 5.5% since setting the all-time high in late October, spot gold is still 28% higher year-to-date and outperforming the S&P 500, and they expect further gains in 2025.
“The latest International Monetary Fund data showed that global central banks’ net gold purchases in October rose to the highest monthly level this year,” they noted. “Based on the agency’s historical pattern of underreporting this metric, we now expect the official sector to buy 982 metric tons of gold this year, up from our previous estimate of 900mt. While this remains lower than levels seen over the past two years, it represents a significant step-up from the average of around 500mt in the years since 2011.”
“We think the strong buying momentum will continue amid de-dollarization efforts, and expect central banks to buy another 900mt of gold or more in 2025,” they added.
UBS also expects the demand for gold in investor portfolios to rise next year.
“While US President-elect Donald Trump’s policy agenda has been well broadcasted, uncertainty remains on what will be implemented from fiscal, trade, and geopolitical standpoints, especially given his transactional approach,” they said. “With the Russia-Ukraine war still ongoing, and the situation in the Middle East no less complicated, we think investor demand for hedges should rise further, boosting inflows to gold exchange-traded funds.”
And lower interest rates from central banks also support the case for holding gold in 2025.
“We expect the Federal Reserve to cut rates by 25 basis points on Wednesday, with more easing ahead in the coming year,” they wrote. “This should reduce the opportunity cost of holding the metal, which is non-interest-bearing. A weaker US dollar in the medium term, due to lower rates and concerns over the US government debt trajectory, should also support gold prices. Since gold is denominated in US dollars, a weakening of the US currency makes the metal cheaper for non-dollar investors, bolstering demand.”
These factors have led UBS to maintain their bullish outlook for gold prices over the next 12 months, with the Swiss banking giant now forecasting the yellow metal to reach $2,900 per ounce by the end of 2025.
“We recommend an allocation of around 5% within a USD-based balanced portfolio as a diversifier,” they said. “More broadly, we also see long-term opportunities in copper and other transition metals as demand increases alongside rising investment in power generation, storage, and electric transport.”
Gold prices are declining ahead of Wednesday afternoon’s Fed rate decision, with spot gold sliding to a session low of $2,633.84 shortly after 10 a.m. EST.
Spot gold last traded at $2,637.98 per ounce for a loss of 0.32% on the day.
