UBS lifts gold price forecast as commodity hits fresh record

Yellow metal soars to new all-time high as UBS updates gold price forecast

Gold prices soared to a new all-time high on Monday, with the investment bank UBS revising its gold price forecast upward and predicting that retail buying will be the next catalyst for the commodity, according to a UBS analyst note cited by MarketWatch.

The gold price was headed for its 14th record this year, with gold futures for June delivery climbing by $10, or 0.4%, reaching $2,355.60 an ounce. This surge set a new intraday peak, outdoing the previous record close of $2,345.40 an ounce at Comex.

The nearly 13% increase in gold prices this year has largely been attributed to anticipated cuts in Federal Reserve interest rates and ongoing geopolitical tensions, such as the war in Gaza and Russia’s invasion of Ukraine. However, some speculate that the uptick is also due to investors betting on continued and increased gold purchases by central banks later in the year.

Banks on Wall Street have been scrambling to keep up with the yellow metal's rally, which, according to a UBS analyst team led by Giovanni Staunovo, has occurred “faster and more forcefully than our already bullish expectations”.

UBS analysts have raised their gold price predictions for this year by $250 per ounce. They adjusted their June forecast to $2,300 an ounce — a figure already surpassed — and set their projections for the year-end and the end of March 2025 at $2,500 an ounce, up from an earlier target of $2,250 for the end of 2024.

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UBS says gold ETFs may rise once Fed starts interest rate cuts

Despite gold reaching record high price this year, Staunovo and his team expect gold exchange-traded fund (ETF) holdings to increase following the start of interest rate cuts by the U.S. Federal Reserve, “as these buyers tend to move more in sync with interest rate adjustments”.

“This even could trigger another step-up in demand via ETFs,” where holdings stand at a 4-year low, said Stauvano. The rally thus far has been driven by buyers who “haven’t traditionally made material purchases, while the usual ETF buyers have been net sellers,” the UBS analysts wrote.

UBS also expects central banks to step up their gold purchases. The Chinese central bank reportedly now holds close to 72.58 million troy ounces of gold — equivalent to about 2,257 tons.

Citi analysts join UBS, boost gold price forecast by 9%

Citi analysts joined their colleagues at UBS and boosted their gold price targets late last week. Their zero-to-three-month forecasts for gold and silver were lifted by 9% and 16%, respectively, to $2,400/oz and $28/oz.

In a note cited by MarketWatch, a team led by analyst Aakash Doshi wrote:

“We see increased risk of gold markets averaging near our bull-case scenario of $2,500/oz for [the second half of 2024] and for silver trading to push to $30/oz.

It is not demand for duration or a weakening US$ trend that is driving the yellow metal to fresh records in recent weeks. But a Fed cycle turn could be a kicker if policymakers proceed with insurance cuts in June/July”.