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Investing.com -- Gold prices surpassed the $3,100 per ounce mark in March, reflecting a nearly 10% increase for the month and extending the metal’s year-to-date rise to 19%.
The recent surge in investment demand, influenced by statements from U.S. President Donald Trump and Elon Musk, as well as disappointing U.S. consumer survey data, has heightened market concerns ahead of the tariff announcements expected on April 2, according to UBS.
“The acceleration of ETF buying marks a sharp reversal from the outflows of this time last year,” strategists led by Wayne Gordon noted.
In the first quarter of 2025, gold exchange-traded funds (ETFs) saw significant inflows, estimated between 130 to 150 metric tons, a stark contrast to the 114-ton outflow in the same period of 2024.
The quarter marked the strongest demand for gold ETFs since the onset of the Ukraine war in the first quarter of 2022, although total holdings are still 730-750 metric tons below the 2020 peak.
The renewed interest in gold ETFs is attributed to several factors, including heightened trade and economic uncertainties, the potential for stagflation, recession risks, and geopolitical tensions, reinforcing gold’s reputation as a hedge against extreme risks.
Moreover, declining U.S. bond yields in the first quarter of 2025 have eased some of the pressure on gold.
Apart from the demand for gold as a safe haven, there are indications of increased long-term allocations to gold by investors.
With central banks purchasing gold at a record pace for the past three years and concerns over the devaluation of the U.S. dollar (USD), private investors seem to be increasing their gold holdings.
“Overall, this reversal of the multi-year ETF redemption cycle alongside ongoing central bank gold purchases and strong retail coin/bar demand can be seen as a bullish shift for the gold market broadly,” strategists explained.
With this in mind, UBS maintains a gold price target of $3,200 per ounce over their forecast horizon and continues to favor gold in their global and Asian investment strategies.
However, the firm recognizes that prices could reach their higher scenario of $3,500 per ounce if tariff-related or geopolitical risks escalate to the extent of adversely affecting the U.S. and global economies.
“We acknowledge that if trade and geopolitical risks deepen, our upside case of USD 3,500/oz cannot be ruled out,” strategists said.
For the long term, they suggest that a 5% allocation to gold within a USD balanced portfolio is optimal for diversification purposes.