UBS expects gold to regain its lustre after a sharp pullback, even as the Swiss bank trimmed its year-end forecast for the precious metal to US$5,500 an ounce from US$5,900.
The new target still implies a recovery from around US$4,420 per ounce and would put gold above its previous record high of around US$5,400/oz earlier this year.
Gold has fallen more than 16% since the US and Israel launched strikes on Iran at the end of February, with investors focusing less on safe-haven demand and more on the risk that higher energy prices could force central banks to keep monetary policy tighter for longer.
UBS noted the rise in two-year US Treasury yields had revived gold’s sensitivity to real rates, with the correlation between two-year yields and gold now near -0.6.
“Declining worries over Fed tightening should give way to the prospect of further cuts later in the year,” UBS said in a note.
The Swiss bank expects the Federal Reserve to cut rates at its December policy meeting, followed by further easing in March 2027, as evidence builds that higher energy costs have not caused a major second-round inflation shock.
Central bank demand is also expected to remain a support. UBS said first-quarter purchases surprised positively at 244 metric tons and forecast central bank demand of 200 to 250 metric tons in the second quarter, while jewellery demand is expected to stabilise around 300 metric tons.
“Central bank buying is likely to remain robust, more than offsetting the recent softening of demand from investors and jewellery consumers,” the bank said.