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UBS has sharply revised its gold outlook, projecting the precious metal to reach $3,800 per ounce by the end of 2025, up from its earlier forecast of $3,500. By mid-2026, the bank expects prices to approach $3,900 per ounce, citing a combination of macroeconomic pressures and persistent geopolitical uncertainty.
The revision reflects UBS’s confidence that gold will remain a cornerstone of its global asset allocation strategy, supported by a surge in exchange-traded fund (ETF) holdings. The bank forecasts ETF gold holdings will climb close to their record high of over 3,900 metric tons by late 2025, highlighting robust institutional and retail interest in safe-haven assets.
Fed Easing Bets Bolster Precious Metals
The Federal Reserve’s anticipated shift toward monetary easing remains the key driver of the gold rally. Recent U.S. data showed inflation rising to 2.9% in August from 2.7% in July, while jobless claims unexpectedly climbed to 263,000, the highest level since 2021.
Markets have interpreted this mix of cooling labor conditions and persistent inflation as a signal for aggressive Fed action, with expectations for a 25-basis-point rate cut next week and as much as 75 basis points of total cuts by year-end. Pimco, however, maintains that while rate reductions are likely, they won’t dramatically alter the Fed’s longer-term inflation outlook.
Commerzbank’s Michael Pfister warns that cutting rates while inflation remains elevated could weaken the US dollar further, enhancing gold’s appeal to global investors seeking a hedge against currency depreciation.
Bond Market Signals and Dollar Volatility
Despite rate cut expectations, US Treasury yields edged higher in Asian trading, with the 2-year yield up 1.8 basis points to 3.545% and the 10-year yield rising 2.3 basis points to 4.033%. These moves suggest investors remain cautious, pricing in both short-term rate cuts and medium-term inflation risks.
The US dollar showed modest strength after Thursday’s sharp drop, but its outlook remains vulnerable. If rate cuts proceed while inflation holds near 3%, the greenback could see renewed pressure, providing further upside for gold.
Key Market Metrics (August–September 2025)
|
Indicator |
Latest Reading |
Previous Reading |
Notes |
|
Gold Price Forecast (End-2025) |
$3,800/oz |
$3,500/oz |
UBS upward revision |
|
Gold Price Forecast (Mid-2026) |
$3,900/oz |
$3,700/oz |
Longer-term bullish outlook |
|
ETF Gold Holdings (Forecast) |
~3,900 metric tons |
~3,400 metric tons |
Nearing record highs |
|
U.S. CPI YoY (Aug) |
2.9% |
2.7% |
Inflation remains above Fed’s 2% target |
|
Initial Jobless Claims |
263,000 |
250,000 |
Highest since 2021 |
|
Fed Funds Rate (Current) |
4.00% |
4.25% |
Market pricing in cuts |
|
2-Year Treasury Yield |
3.545% |
3.527% |
Slight uptick despite easing expectations |
|
10-Year Treasury Yield |
4.033% |
4.010% |
Modest increase reflects inflation concerns |
Broader Macro Backdrop: A Perfect Storm for Gold
The bullish gold narrative is not only Fed-driven but also deeply rooted in structural factors:
- Geopolitical Uncertainty: Rising tensions in Eastern Europe, trade disputes, and Middle East instability continue to bolster safe-haven demand.
- Central Bank Diversification: Emerging-market central banks are aggressively diversifying reserves away from the dollar, adding long-term support to gold prices.
- Currency Weakness: Prolonged monetary easing cycles in advanced economies, particularly in the U.S. and Europe, may spark a multi-currency depreciation cycle, further benefiting gold.
Forward-Looking Scenarios
Bullish Case
If inflation proves sticky and the Fed cuts aggressively to support growth, real yields could remain suppressed, fueling capital inflows into gold ETFs and physical holdings. Under this scenario, UBS’s $3,900/oz forecast could be conservative, with the metal testing $4,000/oz by early 2027.
Bearish Case
A sharp rebound in U.S. growth or faster-than-expected disinflation could limit the Fed’s dovish stance, strengthening the dollar and pressuring gold prices. A normalization in geopolitical tensions would also reduce safe-haven flows, potentially capping gold near $3,500/oz.
Investor Takeaways
Gold’s trajectory reflects a rare alignment of monetary policy, geopolitical risk, and currency volatility. UBS’s aggressive forecast revision underscores gold’s evolving role as a core portfolio hedge rather than a tactical trade.
For investors:
- ETF Allocation: Rising ETF demand suggests sustained institutional support, making gold-backed ETFs attractive for long-term diversification.
- Hedging Strategy: Gold offers an effective hedge against rate-cut-induced dollar weakness and potential stagflation.
- Multi-Asset Play: Gold’s performance may outperform equities if monetary easing fails to stimulate growth, reinforcing its safe-haven appeal.