Gold is still on course to hit new all-time highs later this year, according to UBS, even though the price has dropped following progress with the US debt ceiling talks.
At around US$1,950/oz, gold is now more than 4% below the year-to-date high reached earlier in May, but this still leaves it 7.4% higher year to date and it should again break its all-time high later this year, said the bank.
According to UBS, the metal has three things going for it currently.
First, central bank demand should remain robust.
“Last year marked the 13th consecutive year of net gold purchases by global central banks and the highest level of annual demand on record.
“Based on the first quarter 2023 data from the World Gold Council, we continue to expect central banks to buy around 700 metric tons of gold this year, which is much higher than the average over the last decade.“
Second, according to UBS, broad US dollar weakness also supports gold.
“We believe headwinds to the US dollar should intensify as we approach a pivot by the Federal Reserve, possibly in the second half.
“The European Central Bank, by contrast, still has more tightening to go.”
US recession risk prompting safe-haven flows, particularly through ETFs and physical demand, is the third reason, according to the bank.
UBS forecasts a US$2,100/oz by year-end, which rises to US$2,250/oz by June 2024.