(***** News) - Although gold is finding some sticky resistance around $2,400 an ounce, the rally in the precious metals market is far from over, as one Swiss bank has increased its price forecast across the board.
In its updated gold market outlook, published last week, commodity analysts at UBS said they expect gold prices to run to $2,500 an ounce by September and hit $2,600 an ounce by year-end; the forecasts are up from the original estimates of $2,400 and $2,500 an ounce, respectively.
At the same time, UBS also released its 12-month forecast, predicting that gold prices will rise to $2,700 an ounce by June 2025.
(***** News) - The analysts said they see three factors supporting gold's 12-month uptrend, with the first pillar of support coming from the Federal Reserve. Although the U.S. central bank has been reluctant to signal a rate cut anytime soon as inflation remains elevated, UBS said that it's only a matter of time before interest rates start to fall.
The analysts said lower interest rates will reduce gold's opportunity costs, which should attract Western Investors back into gold-backed exchange-traded funds.
According to the CME FedWatch Tool, markets are expecting the Federal Reserve to leave interest rates unchanged through the summer and see a 50/50 chance of a rate cut in September.
"We acknowledge the considerable uncertainty around the path of rates in the short term, but we see rates falling, and this typically drives ETF inflows, which is our next key catalyst," the analysts at UBS said.
The second factor that will continue to support higher gold prices is continued demand from central banks. The analysts said they expect central bank gold purchases to hit another near-record this year.
The Swiss bank sees global official reserves growing between 950 tonnes and 1000 tonnes this year. Data from the World Gold Council showed that official gold reserves increased by more than 1,000 tonnes in each of the last two years.
As part of the ongoing theme, UBS also expects China will continue to dominate the marketplace.
"While recent People's Bank of China data show a moderation in gold purchases, Swiss trade data signal strong buying continuing in China," the analysts said.
Geopolitical uncertainty, driving safe-haven demand for gold, is the third bullish factor behind the bank's updated forecast.
"We expect ongoing geopolitical uncertainty to support hedges like gold, with the US election approaching, wars in the Middle East and Ukraine ongoing, and heightened US-China trade tensions," the analysts said.
UBS' bullish outlook comes as gold has found solid initial support at $2,300 an ounce. The analysts recommend buying gold on dips in the current environment.
