UBS Sees Dollar Depreciation Trend Continuing Through Next Year

UBS is predicting a continued trend of de-dollarization, where countries shift away from using the US dollar as their reserve currency. The bank believes this trend will lead to sustained flows into gold and other commodities.

The DXY dollar index has fallen 2.4% over the past month due to renewed concerns over the US fiscal outlook. UBS expects a gradual, medium to long-term dollar depreciation trend to persist despite possible near-term support from Middle East tensions and higher oil prices.

Gold is expected to benefit from this trend, with UBS forecasting it to reach $5,400 an ounce over the next 12 months. The bank points to resumed inflows into gold ETFs, robust central bank buying, and expectations that markets scale back Fed rate hike bets as supporting factors for gold's price increase.

UBS also favors broad commodity exposure alongside gold, citing strong oil demand growth in emerging markets, industrial metals demand tied to electrification, energy transition, and AI infrastructure buildout, and potential El Niño-related disruption to agricultural supply.