UBS Sticks with Gold as US Rate Hikes Bite

The gold price in USD (XAU/USD) took a hit on Wednesday, falling 1.92% to around $4,280 an ounce.

This decline has pushed the metal back towards last week's lows, testing UBS's view that tighter US monetary policy can coexist with a positive longer-term outlook for gold.

UBS acknowledges that the Federal Reserve's latest rate increase could keep inflation-adjusted US yields and the Dollar elevated, weighing on gold. However, they believe that central bank demand, continued diversification away from the US dollar, and global debt concerns will remain important structural supports for gold prices over the next 12 months.

In fact, UBS points to the World Gold Council's June survey of reserve managers, which found that 89% expected global central-bank gold holdings to increase over the following year. The bank also favors a broader spread of commodity holdings, including gold as part of its wider case for commodities as protection against geopolitical stress, supply shocks and inflation.