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Investing.com -- UBS has raised its gold price forecasts as the precious metal extends its strong rally, supported by expectations of U.S. rate cuts, a weaker dollar, and persistent geopolitical uncertainty.
Gold has climbed 38% this year to $3,637 an ounce, just shy of its record high of $3,674 earlier this month.
UBS now sees gold reaching $3,800 an ounce by the end of 2025, up from its prior $3,500 forecast, and $3,900 by mid-2026 versus $3,700 previously.
The bank also lifted its estimate of exchange-traded fund (ETF) holdings to near the previous record of 3,900 metric tons by end-2025, alongside forecast inflows of almost 700 metric tons next year.
“Given current correlations to prices, we are raising our gold forecast by $200/oz by mid-2026,” strategists led by Wayne Gordon said in a note.
The team pointed to recent downside surprises in U.S. payroll data, which have driven a rapid repricing of Federal Reserve policy expectations.
The U.S. terminal rate now stands at 2.93%, while real interest rates have fallen more than 20 basis points in under a month, bringing five-year Treasury Inflation-Protected Securities yields to their lowest since mid-2022.
UBS expects real rates to decline further into year-end, supporting gold demand, while dollar weakness over the next 12 months should add to buying momentum.
Outside of macro drivers, central bank purchases are expected to remain firm at around 900–950 metric tons this year, just below last year’s near-record level of more than 1,000 tons.
Political drivers are at play, strategists note, highlighting that U.S. President Donald Trump’s preference for lower policy rates has bolstered gold’s appeal.
UBS maintained its “Attractive” stance on the metal in its global asset allocation. "Our analysis suggests a mid-single-digit percentage allocation to gold is optimal," strategists said.
The main risk for the bullion, according to the bank, would be if the Federal Reserve is forced to reverse course and raise rates in response to unexpected inflation pressures.