Despite the recent weak phase in gold and silver, the major Swiss bank UBS is sticking to its ambitious forecasts and expects strong price increases.
• Iran war weighs on gold price
• UBS confirms its year-end targets for gold and silver
• Price drivers are falling real interest rates, stable central bank purchases and sustained demand
UBS continues to expect significantly higher prices for gold and silver by the end of the year. As Bloomberg reports, the bank confirmed its forecasts of $5,600 per ounce of gold and $100 per ounce of silver. From UBS’s perspective, the underlying factors for the expected price increase remain intact. The bank’s precious metals strategist, Joni Teves, explained in a telephone conference with media representatives that the general conditions continued to support precious metals.
Geopolitics is a burden in the short term – real interest rates provide support in the long term
Although the gold price has been under pressure since the beginning of the Iran war, the expert points to falling real interest rates as a result of higher inflation while the US Federal Reserve’s key interest rates remain unchanged. Such an environment is traditionally considered positive for gold, as holding non-interest-bearing investments becomes more attractive.
Another important factor in the continued strength of the gold market remains the demand for diversification from institutional and private investors. “The topic of diversification is still relevant,” said the UBS strategist.
In addition, UBS believes it is “unlikely” that central banks will stop buying gold or sell larger holdings.
According to UBS, consolidation opens up new entry opportunities
UBS does not see the recent consolidation in gold prices as a signal of weakness. Rather, the bank sees this as a phase in which investors were able to rebuild their positions. This results in further potential for above-average development of the precious metal.
According to UBS, silver is also likely to benefit from this development. The bank expects silver to be pulled along by gold and to remain supported by fundamental factors.
Silver market facing supply deficit
UBS is also optimistic about the silver market. Accordingly, demand for silver is likely to exceed supply this year, which could provide additional support for the silver price. The bank is observing robust investments from China, India and the Middle East. In addition to macroeconomic factors, UBS also sees structural support for the silver price.
Short-term risks
However, in addition to the positive long-term outlook, UBS also points to possible short-term risks on the precious metals market. The bank expressly describes the current high volatility as a feature of the current market phase and at the same time as a potential entry opportunity for investors.
UBS sees additional uncertainties caused by industrial demand, especially when it comes to silver. Since silver is heavily used in industry, a weaker global economy could mean that price increases here could be lower than for gold. From the bank’s perspective, this makes silver different from the yellow precious metal, which benefits more from its function as a safe haven. Nevertheless, UBS is sticking to its positive outlook for both precious metals overall.
What this means for investors
For investors, the UBS assessment suggests that precious metals could continue to play an important role in diversifying a portfolio. Gold is often used as a hedge, especially in geopolitically and economically uncertain times.
However, investors should also note that gold and silver can be subject to strong short-term fluctuations despite the positive long-term outlook. According to UBS, those who are already invested are more likely to interpret the recent consolidation as a stabilization rather than a break in the trend. Meanwhile, setbacks could offer entry opportunities for newcomers.
Thomas Zoller, editorial team at finanzen.net
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