Investing.com — UBS strategists expect the stock to continue its gains through 2025.
Bullion held steady around $2,650 an ounce this week, held back by the strength of the U.S. dollar, rising U.S. Treasury yields and improving risk appetite for U.S. stocks.
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Gold is up 28% year to date, outperforming the stock market index.
In a note released Wednesday, UBS strategists highlighted several catalysts that should continue to push gold prices higher next year.
Among these is the accumulation of gold by central banks, which UBS predicts will continue in 2025 as part of their diversification strategies.
Data from the International Monetary Fund (IMF) shows that net purchases of gold by global central banks in October reached the highest monthly level recorded this year. UBS revised its forecast for official sector gold purchases to 982 metric tons for 2024, up from a previous estimate of 900 metric tons.
Although this figure is lower than the levels of the past two years, it represents a substantial increase from the post-2011 average of around 500 metric tons. Strategists believe this trend will continue,
“We believe strong buying momentum will continue amid dedollarization efforts and expect central banks to purchase another 900 tonnes of gold or more in 2025,” wrote the strategists led by Mark Haefele in the note.
Investor demand for gold as a portfolio hedge is also expected to increase. Although US President-elect Donald Trump’s policy agenda has been widely discussed, uncertainties remain regarding fiscal, trade and geopolitical developments.
Combined with ongoing conflicts in Ukraine and the Middle East, UBS believes these factors will lead to increased demand for safe-haven assets, boosting inflows into gold exchange-traded funds.
Additionally, falling interest rates are another factor expected to support gold prices next year. UBS expects the Federal Reserve to cut rates by 25 basis points on Wednesday, with additional easing expected over the coming year.
“This should reduce the opportunity cost of holding the metal, which does not bear interest,” the strategists explain.
The weakening U.S. dollar, driven by falling rates and concerns about the trajectory of U.S. debt, is expected to fuel demand for gold by making it more affordable for non-dollar-holding investors.
UBS therefore remains optimistic on gold for the next 12 months, forecasting that prices will reach $2,900 per ounce by the end of 2025.
“We recommend an allocation of approximately 5% within a balanced dollar-based portfolio, for diversification,” the strategists said.
Longer term, they also see growth potential in metals and other transition metals, driven by increasing investments in power generation, energy storage and electric transportation.
