Gold Remains Key Portfolio Component Despite Near-Term Headwinds
UBS analysts believe that gold remains a vital component of investor portfolios, despite recent price drops due to rising US Treasury yields and hawkish Federal Reserve comments.
In a note released on Tuesday, UBS's Chief Investment Office said that the Fed is likely to raise policy rates by 50 basis points this year, putting pressure on gold prices in the near term. However, they do not believe this diminishes gold's strategic role in a portfolio over the medium term.
The analysts cited several factors supporting gold prices over the medium term, including strong central bank demand for bullion and sovereign reserve accumulation. The People's Bank of China purchased 650,000 ounces of gold in August, its largest monthly addition since October 2023.
UBS expects annual central bank purchases to remain elevated, supported by a long-term desire to reduce exposure to USD assets. Sovereign demand is also seen as a key driver for gold prices, with nearly 90% of surveyed central banks expecting global official gold reserves to increase over the next 12 months.
The analysts highlighted that persistent inflation and geopolitical uncertainty reinforce gold's role as a portfolio hedge and diversifier. They noted that institutional investors often cite gold's performance during crises, its potential to hedge geopolitical risks, and its diversification benefits as reasons to maintain or increase their holdings.