Gold’s rally should continue in 2025, says UBS

Investing.com -- UBS strategists expect gold to build on its gains heading into 2025.

The bullion has remained steady around $2,650/oz this week, constrained by the strength of the US dollar, rising US Treasury yields, and improved risk appetite for US equities.

Gold rose 28% since the start of the year, outperforming the S&P 500 equity index.

In a note published Wednesday, UBS strategists highlighted several catalysts expected to continue driving upside in gold prices next year.

Among those are central banks’ accumulation of gold, which UBS believes will continue in 2025 as part of their diversification strategies.

Data from the International Monetary Fund (IMF) shows global central banks’ net gold purchases in October were the highest monthly level recorded this year. UBS has revised its forecast for official sector gold purchases to 982 metric tons for 2024, up from a previous estimate of 900 metric tons.

While this figure is below the levels of the past two years, it represents a substantial increase compared to the post-2011 average of around 500 metric tons. Strategists believe this trend will persist, stating,

"We think the strong buying momentum will continue amid de-dollarization efforts and expect central banks to buy another 900mt of gold or more in 2025,” strategists led by Mark Haefele wrote in the note.

Investor demand for gold as a portfolio hedge is also likely to rise. Although the policy agenda of US President-elect Donald Trump has been widely discussed, uncertainties remain regarding fiscal, trade, and geopolitical developments.

Coupled with ongoing conflicts in Ukraine and the Middle East, UBS believes these factors will drive increased demand for safe-haven assets, boosting inflows to gold exchange-traded funds.

Moreover, lower interest rates are another factor expected to bolster gold prices next year. UBS forecasts the Federal Reserve will reduce rates by 25 basis points on Wednesday, with additional easing anticipated in the coming year.

"This should reduce the opportunity cost of holding the metal, which is non-interest-bearing," strategists explained.

A weaker US dollar, driven by lower rates and concerns over the US debt trajectory, is likely to fuel gold demand by making it more affordable for non-dollar investors.

Thus, UBS remains bullish on gold for the next 12 months, projecting prices to reach $2,900/oz by the end of 2025.

“We recommend an allocation of around 5% within a USD-based balanced portfolio as a diversifier,” strategists said.

Looking further ahead, they also see growth potential in copper and other transition metals, driven by increasing investments in power generation, energy storage, and electric transportation.

Source: Investing.com