(Kitco News) - Geopolitical uncertainty in the Middle East remains extremely elevated after the U.S. announced a missile attack on Iran’s nuclear facilities, and Iran responded with a missile attack on a U.S. airbase in Qatar. However, gold is not attracting a significant safe-haven bid, as prices have struggled to hold above $3,400 an ounce.
Some analysts note that safe-haven demand for gold has been limited because the conflict has remained contained within the region. Alongside gold, oil prices are also struggling to sustain gains driven by the ongoing turmoil.
Despite gold’s lackluster safe-haven appeal, market analysts at UBS emphasize that gold’s strength lies not in its role as a hedge against geopolitical events, but in its broader function within a diversified portfolio.
“Investors, though, might benefit from thinking about gold from the perspective of portfolio diversification, rather than as a discrete trade that hinges on the price level,” said Julian Wee, Investment Writer at UBS.
Citing data from the World Gold Council’s Annual Central Bank Gold Survey, Wee highlighted that portfolio managers view gold as a multi-faceted asset. According to the survey, the top three reasons for holding gold are its performance during periods of uncertainty, its utility as a diversification tool, and its function as a store of value.
“The current geostrategic environment supports all these factors, albeit to varying degrees. The Trump administration's unpredictable policy-making contributes to an erosion of confidence, which may remain a key driver in the near term. Investors should be mindful of the indicators pointing to a sustained move out of the USD, and gold is likely to play a crucial role in this transition,” Wee said.
Although gold is currently trading in a sideways pattern, UBS remains bullish on the yellow metal, maintaining its upside target of $3,800 an ounce.
“We expect central bank and ETF demand to remain robust going forward,” Wee added. “Gold also serves as a liquid, politically neutral store of value in lieu of the USD.”
However, Wee also pointed to other ways investors could capitalize on gold’s value, even as prices consolidate. He suggested that investors consider corporate debt issued by gold miners, noting that some bonds are yielding around 6%. The mining sector has struggled to attract consistent investor interest despite record-high gold prices. Nevertheless, stable production costs have allowed producers to maintain significant margins over the past few years.
“Healthy free cash flow generation has enabled these companies to reduce net leverage and further strengthen their balance sheets,” Wee said. “We expect M&A activity to continue in a lower-risk manner, helping preserve the strength of their financial metrics.”
