UBS expects gold prices could retreat towards $4,000 per ounce in the near term as higher U.S. real yields and a stronger dollar weigh on the metal, although the bank anticipates that longer-term demand will provide support around that level.
In a research note, UBS strategist Giovanni Staunovo identified rising real interest rates and dollar appreciation as factors increasing the opportunity cost of holding gold, which does not generate interest income.
“Near-term headwinds persist: High U.S. real yields and a firm dollar could push gold back toward $4,000/oz,” Staunovo said.
Spot gold was trading at $4,191 per ounce on Friday at the time of the original report.
According to Staunovo, recent price declines appear to have been driven by non-commercial market participants reducing their net long positions in gold futures and options.
However, holdings in gold-backed exchange-traded funds (ETFs) have remained relatively stable, with the strategist noting continued inflows over recent weeks.
Central Bank Purchases and Investment Demand
UBS said gold has maintained a degree of price stability despite the increase in bond yields, suggesting that its sensitivity to real interest rates may have diminished compared with previous market cycles.
Staunovo attributed this partly to demand from central banks seeking to diversify reserves, alongside concerns over government debt levels and debt-servicing costs.
The bank also cited expectations for a weaker U.S. dollar over time and continued gold purchases in China as factors supporting its longer-term outlook.
In India, UBS expects demand to benefit from the festival season and potentially lower gold prices.
Preliminary figures for September indicated that central bank purchases continued, with China acquiring 23 metric tons and Uzbekistan purchasing 7 metric tons.
UBS maintains its forecast for annual central bank gold purchases of between 750 and 1,000 metric tons.
Federal Reserve Outlook and Gold Price Forecasts
The bank also highlighted differences between market expectations for U.S. monetary policy and its own interest rate projections.
Financial markets are currently pricing in slightly more than 75 basis points of Federal Reserve rate increases through 2027.
UBS, by comparison, expects one additional interest rate increase in 2026, followed by two reductions of 25 basis points each during 2027.
Staunovo said a reassessment of the likelihood of further monetary tightening could lead to lower real yields, potentially supporting higher gold prices.
UBS forecasts gold reaching $4,600 per ounce by December 2026, followed by $5,000 in March 2027 and $5,200 in June 2027. The bank expects the metal to reach $5,400 per ounce by September 2027.
These projections indicate expectations for gold prices to increase through 2027, despite the possibility of a near-term decline.
Staunovo said price pullbacks towards $4,000 per ounce “offer opportunities to add exposure,” reflecting the bank’s view that longer-term demand could support the market.
For investors seeking exposure to real assets, the strategist recommends a mid-single-digit percentage allocation to gold.