(Kitco News) – The current pullback in the gold market is only temporary, and the yellow metal’s price is still on track to reach $4,200 per ounce, with an upside scenario of intensifying geopolitical or market risks driving it as high as $4,700, according to analysts at UBS.
“The much-anticipated correction has taken a breather,” UBS said in a research note on Monday. “Outside technical factors, we see no fundamental reason for the sell-off.”
The Swiss banking giant noted that “fading price momentum triggered a second leg down in futures open interest,” but they emphasized that underlying demand remains strong.
UBS analysts also cited the World Gold Council’s Q3 Gold Demand Trends report, which confirmed “very strong and accelerating buying” from both central banks and individual investors.
“Central bank purchases of 634 metric tons this year have been slower than last year’s pace but are picking up in Q4, in line with our forecast of 900–950 metric tons for 2025,” they wrote.
ETF inflows of 222 metric tons and bar and coin demand above 300 metric tons for the fourth consecutive quarter demonstrate that investor appetite has also strengthened. “Jewellery demand was also not as weak as feared,” UBS noted.
“We like to buy the dip in gold,” the analysts said, adding they continue to believe that investors “remain underallocated” to the metal. UBS recommends a mid-single-digit allocation to gold within investor portfolios.
On Oct. 20, Sagar Khandelwal, strategist at UBS Global Wealth Management, said lower real interest rates, a weaker dollar, rising government debt, and geopolitical turmoil could push the yellow metal to $4,700 per ounce by Q1 2026, and mining stocks will do even better.
“While the scale and speed of the gold rally may mean volatility could pick up from here, we maintain the view that gold is a valuable component of a resilient investment strategy,” he wrote.
Khandelwal warned that U.S. real interest rates could well fall into negative territory as the Federal Reserve cuts interest rates amid still-sticky inflation.
“We believe this will further undermine the appeal of the US dollar and therefore boost investment flows into bullion,” he said. “In fact, global gold ETFs recorded their largest monthly inflow in September (USD 17bn), according to the World Gold Council, making the USD 26bn in inflows over the three months to September the strongest quarter on record.”
UBS believes investment demand can strengthen even further. “[C]oupled with still-elevated central bank purchases, global gold demand this year should, in our view, reach around 4,850 metric tons, the highest level since 2011,” Khandelwal wrote. “If private investors begin diversifying US Treasury holdings into gold, which has been a trend among central banks, spot prices could be pushed even higher.”
“Finally, as economic, geopolitical, and policy uncertainties remain, we expect continued flows into the yellow metal, which could spur additional gains toward our upside case of USD 4,700/oz,” he said. “Given the precious metal’s low correlation with equities and bonds, especially during periods of market stress, we favor a mid-single-digit exposure to gold in a well-diversified portfolio.”
“Separately, investors can also consider equity exposure to select gold miners as their cash flow could rise faster than gold prices in the next six months,” Khandelwal added.
Gold prices are continuing to trade on either side of the $4,000 per ounce level on Monday after twice topping out at the session high of $4,030, most recently just after 10 am EST.
Spot gold last traded at $4,000.97 per ounce for a gain of 0.05% on the session.
