UBS has issued a bullish outlook for gold in 2025, driven by a combination of lower interest rates, ongoing geopolitical tensions, and a strong U.S. dollar. The bank anticipates that these factors will stimulate both investor and central bank demand for gold, which has already seen significant price appreciation.
The report highlights that central banks, particularly from BRIC nations, have been significant buyers of gold, effectively raising the price floor. UBS notes that while central bank purchases may slow in 2025, the potential for Western-based buying driven by interest rates and dollar correlations could lead to further price increases. The bank's analysis suggests that gold could see substantial gains, starting from a price point of around USD 2,800 and potentially rising above USD 3,000, contingent on market conditions and investor sentiment.
While the U.S. dollar has maintained a strong position in the near term, UBS warns that its valuation may be overstretched. The bank suggests that investors should consider reducing their exposure to the dollar, particularly through hedging strategies or diversifying into other currencies. The report indicates that the dollar is entering a phase of uncertainty, influenced by various economic policies, including tax cuts and deregulation, which may attract capital inflows to U.S. markets.
However, UBS believes that the market is overestimating the likelihood of sustained high interest rates from the Federal Reserve. The potential for a weaker dollar is anticipated, especially if new tariffs are implemented alongside a renewed focus on domestic manufacturing and exports. Concerns regarding the trajectory of U.S. government debt and unpredictable foreign policy could further undermine confidence in U.S. Treasuries as a safe asset. The bank projects that the dollar could approach 1.12 against the euro by the end of 2025, signaling a shift in the currency landscape.
Geopolitical risks continue to loom large, influencing investor behavior and market dynamics. UBS emphasizes that persistent uncertainties in the global landscape are likely to drive demand for gold as a safe-haven asset. The bank's analysis indicates that traditional drivers of gold prices, such as lower real interest rates and rising geopolitical tensions, are expected to reassert themselves in the coming year. This environment could lead to increased inflows into exchange-traded funds (ETFs) that hold gold, further supporting price growth.
In addition to gold, UBS identifies long-term opportunities in copper and other transition metals, driven by rising demand for power generation, storage, and electric transport. As the world shifts towards more sustainable energy solutions, these metals are poised to benefit from increased investment and consumption. The bank's outlook suggests that the broader commodities market may experience a renaissance, with gold at the forefront of this trend.
The report highlights a significant shift in central bank buying patterns, with an estimated 900 metric tons of gold purchased in 2024. This level of demand is expected to remain well above the previous decade's average of approximately 325 metric tons per year. UBS anticipates that central banks will continue to diversify their reserves away from the U.S. dollar, a trend that aligns with the broader de-dollarization movement observed in recent years.
As central banks adjust their strategies, the implications for gold prices could be profound. The bank notes that while central bank buying may slow in 2025, the underlying demand from Western investors, driven by economic conditions and interest rate correlations, could provide a robust foundation for price appreciation. The interplay between central bank policies and market dynamics will be crucial in shaping the future trajectory of gold and other precious metals.
In summary, UBS's analysis presents a compelling case for gold as a key investment in 2025, supported by a confluence of economic factors and geopolitical uncertainties. As the financial landscape evolves, investors are advised to remain vigilant and consider the potential benefits of diversifying their portfolios with gold and other precious metals.