(Kitco News) – A further decline in real U.S. rates will help support investor demand for gold exchange-traded funds (ETF) by lowering the opportunity cost of holding the non-yielding metal, while central banks are expected to continue adding to their reserves, according to analysts at UBS.
“Gold remained under pressure for much of last week,” the analysts wrote on Monday. “Even after a rebound, the precious metal is still around 7% below its all-time high.”
They noted that volatility has been elevated, with recent weeks featuring the largest daily decline for the yellow metal since 2013 – and the largest daily gain since 2008. “The immediate catalyst of the swings was the nomination in late January of Kevin Warsh to head the Federal Reserve, which eased fears that the appointment of a more dovish candidate could accelerate the recent weakening of the US dollar,” they wrote. “Gold had previously benefited from worries over the value of the US currency.”
UBS said the recent bout of volatility has challenged the belief in the value of holding gold as a hedge against geopolitical and market swings, but their own belief has not wavered.
“We believe such worries are overdone, and that the rally in gold will resume,” the analysts said. “Even after recent swings, gold is still up around 16% so far this year, having been a key beneficiary of bouts of geopolitical uncertainty, which we expect to persist. We also do not expect Fed policy to end the rally in gold, as has happened several times historically.”
They pointed out that Kevin Warsh, though he favors shrinking the Federal Reserve’s balance sheet, has advocated for lower rates in the past. “This should support gold, even if longer-term worries about the value of the dollar abate,” they said. “This likely further decline in real US rates should help support investor demand for gold exchange-traded funds by lowering the opportunity cost of holding the non-yielding metal. Finally, other drivers of the gold rally remain intact, including robust demand from central banks.”
UBS analysts are now forecasting that gold will end the year around $5,900 an ounce. “This feeds into our broader positive view on commodities,” they wrote. “We believe that strong performances from industrial and precious metals have scope to continue, and we anticipate commodities will play a more prominent role in portfolios in 2026, with returns driven by supply-demand imbalances, geopolitical risks, and long-term trends.”
“For investors with substantial allocations and significant unrealized profits in gold, broadening commodity exposure to include copper, aluminum, and agricultural assets can help diversify sources of future return and potentially steady portfolios.”
Spot gold spiked to a session high of $5,078.74 at the North American open, but prices have since pulled back closer to $5,000 in early trading.
Spot gold last traded at $5023.65 per ounce for a loss of 0.67% on the session.
