UBS Maintains Bullish Outlook on Gold Amid Central Bank Purchases

UBS has reaffirmed its positive long-term outlook on gold, emphasizing that recent price declines are primarily influenced by shifting expectations regarding U.S. Federal Reserve interest rates rather than a deterioration in gold's investment fundamentals. The bank noted that gold prices have fallen by 5.5% over the past two weeks, following a 15% increase earlier in August, as U.S. Treasury yields rose alongside hawkish comments from Federal Reserve Chair Kevin Warsh and stronger-than-expected payroll data.

The bank now anticipates a 50 basis point rate hike from the Federal Reserve this year, which it believes will create near-term headwinds for gold due to higher real yields and a stronger U.S. dollar. However, UBS argues that these factors do not undermine gold's medium-term strategic value, drawing parallels to its bullish stance on equities despite similar rate pressures.

Central to UBS's long-term case for gold is the sustained demand from central banks. China's central bank purchased 650,000 ounces of gold in August, marking its largest monthly addition since October 2023 and extending a buying streak that has lasted for 22 consecutive months. Additionally, a World Gold Council survey indicated that nearly 90% of central banks expect to increase their gold reserves over the next year, with 45% planning to boost their own holdings. UBS forecasts annual central bank gold purchases to range between 750 to 1,000 metric tons, which it views as a structural support for gold prices.

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Source: KLEA News