Gold: UOB Lifts Target by $100 as Strategic Demand Endures

Gold’s pullback has not dented the structural bid underneath the metal. The latest leg lower reflects positioning stress rather than a change in long-term demand. The key transmission channel remains global reserve diversification and the growing preference for hard assets in a world wrestling with de-globalization, fiscal dominance, and uneven real-rate cycles. That creates an opportunity for investors who can look beyond tactical volatility.

The narrative around gold has matured. What began as a hedge against pandemic money creation has evolved into a strategic allocation for sovereigns and private portfolios. Emerging-market central banks increased reserves consistently over the last two years, helping push prices above four thousand dollars per ounce earlier in 2025.

This shift has been motivated less by inflation fear and more by geopolitical hedging and concern over reliance on the dollar for reserves and settlement. The de-dollarization trend is incremental, not revolutionary, but incremental flows compound. China, India, and Middle Eastern buyers have anchored demand while Western institutional flows have been procyclical, adding exposure late in the rally and trimming positions when real yields firmed.

Monetary policy is also shaping the backdrop. The Federal Reserve remains data dependent, with real short-term rates still positive as core inflation eased toward three percent year-on-year. If the Fed cuts once more this year, as futures currently imply with roughly twenty basis points priced by December, real yields could drift lower and ease pressure on non-yielding assets.

The fiscal backdrop, with deficits near five percent of GDP and Treasury supply still heavy, complicates the picture. Higher long-term yields earlier in the quarter tightened financial conditions and weighed on gold, yet sovereign demand offset the impact and limited the drawdown. Meanwhile, Asia’s growth pulse stabilized, energy markets stayed firm with Brent trading near eighty-five dollars per barrel, and inflation expectations held steady. These cross-currents support gold as a hedge against both financial repression and geopolitical shocks.

Market reactions show how sensitive the cross-asset setup remains. Spot gold fell roughly two percent intraday during the latest correction, briefly dipping below three thousand nine hundred dollars per ounce before stabilizing. The 2-year Treasury yield rose six basis points, and the 10-year added four basis points on the day, preserving a modest curve inversion.

That move in real yields supported the dollar, lifting the DXY by nearly half a percent. Higher real yields pressured growth stocks, with the Nasdaq slipping about one percent while financials in the S&P 500 outperformed as the index ended down around half a percent. Credit spreads widened three basis points in investment-grade markets, while implied equity volatility nudged higher but remained contained.

The interplay was classic: stronger dollar, softer gold, modest equity repricing, and defensive flows into cash-like assets.

Looking forward, the base case remains constructive. Central bank accumulation is likely to stay consistent, and strategic allocation from private wealth investors should increase if real yields drift lower as policy eases in 2026. Banks and research desks that lifted their gold forecasts now see levels rising by roughly one hundred dollars per ounce per quarter, targeting four thousand dollars by late 2025 and reaching roughly four thousand three hundred dollars by mid-2026.

Near-term triggers include the next US inflation release in two weeks, the Federal Reserve meeting in six weeks, and China’s policy lending rate decision later this month. If growth data softens while inflation stays contained, real yields could decline and give gold another leg higher over the next two to three months.

The alternative case deserves respect. If US data re-accelerates and forces the Fed to communicate fewer cuts or a prolonged pause, two-year yields could jump by another twenty to thirty basis points and the dollar could strengthen further. In that scenario, gold could retest the three thousand seven hundred dollar zone in the coming weeks.

Positioning is still elevated among hedge funds, so a stronger dollar and rising real yields could drive forced selling. Watch weekly ETF flows and CFTC positioning for early cracks. Monetary policy surprises, especially around inflation stickiness or renewed fiscal stress, would be the main catalyst for volatility.

For portfolios, gold remains a strategic hedge in a regime defined by fiscal strain, multipolar geopolitics, and unpredictable real-rate cycles. Exposure through physical, ETFs, or miners offers diversification, particularly when real yields drift lower and the dollar weakens. The opportunity lies in scaling into weakness, while the primary risk is a hawkish surprise that lifts real rates.

A clear break in central bank buying or a sustained rally in the dollar would challenge this view. Until then, gold remains one of the few assets offering convex protection against both geopolitical risk and policy-driven liquidity cycles.