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Gold rally not over: UBS targets $5,400
Economy
UBS has extended its gold price forecast by one quarter, setting a target of $5,400 per ounce by the end of September 2027.
The bank expects further gains driven by lower real interest rates and robust investment demand.
The new target assumes that disinflation in 2027 will create conditions for easing US monetary policy, and the dollar will continue to weaken broadly, UBS strategists noted. The bank's forecast for the end of 2026 remains unchanged at $4,600 per ounce.
Gold prices have risen in recent days as investors have revised their outlooks for US monetary policy and the dollar. Uncertainty from the Federal Reserve regarding the near-term path of interest rates, as well as weakening US labor market data, have fueled expectations that the Fed may keep rates unchanged provided inflation is contained.
Demand has also increased. Inflows into gold ETFs have resumed, led first by China and then Europe, while central bank purchases remain stable. According to the World Gold Council, net central bank purchases in June totaled 51 metric tons. The People's Bank of China added 20 metric tons to its reserves in July, the largest monthly increase since October 2023.
UBS strategists outlined three conditions necessary for gold's rally to continue: further dollar weakness, lower expected U.S. real interest rates, and strengthening investment demand. The bank's baseline scenario assumes the Fed will leave rates unchanged in September, although analysts have pointed to uncertainty about potential rate hikes later this year.
On the demand side, UBS estimates that investment demand of around 500 metric tons per quarter will be required for gold trading to be more sustainable at $5,000 per ounce and above. The higher long-term forecast reflects UBS's position that disinflation could become more pronounced in 2027, supported by favorable base effects and expectations that U.S. economic activity will be at or below trend—both factors that could weigh on the dollar and support gold.
Given these prospects and elevated options volatility above 20%, the strategists favored volatility-selling strategies, particularly selling downside gold risk for additional yield. "Price pullbacks to $4,000 per ounce, in our view, present opportunities to build positions in gold," they wrote.
The main risk to this scenario is a Fed rate hike this year, which UBS believes could lift real yields, support the dollar, and weaken gold demand. In such a scenario, gold could fall to $3,850 per ounce.