UBS Stands Firm on Gold's Long-Term Prospects Amid Price Drop

Gold prices have been falling over the past two weeks, down 5.5%, as US Treasury yields rose and Federal Reserve Chair Kevin Warsh made hawkish comments. However, UBS remains bullish on gold's long-term prospects, arguing that dips in price are a result of shifting Fed expectations rather than a deterioration in the metal's structural case.

The bank now expects the Fed to raise rates by 50 basis points this year, which would put pressure on real yields and the US dollar. UBS believes that this near-term headwind for gold does not undermine its medium-term strategic case, citing the same rate backdrop as supportive of its bullish view on equities.

Central bank demand is a key driver of UBS's long-term thesis. China's central bank bought 650,000 ounces of gold in August, up from 640,000 ounces in July and the largest single monthly addition since October 2023. The World Gold Council survey cited by UBS found that nearly 90% of central banks expect global official gold reserves to rise over the next year.