Gold’s strong rally is likely to continue as interest rates are cut, says UBS By Investing.com

Investing.com — has seen growth in recent months driven by a combination of macroeconomic factors and geopolitical uncertainty.

According to analysts at UBS, this upward trend is expected to persist as key market conditions continue to evolve. The main catalysts for this sustained growth include impending interest rate cuts, the weakening of the US dollar and persistent geopolitical risks.

UBS sees gold as a preferred hedge against these uncertainties, suggesting its strong performance is far from over.

One of the key factors supporting gold’s rally is the expectation of further interest rate cuts by central banks, particularly the US Federal Reserve.

As inflationary pressures ease and concerns about economic growth grow, central banks are expected to shift toward a more accommodative monetary policy.

“We maintain our view that a 150-200 bps change in short-term yields in developed economies over the next 12-18 months will lead to higher investment next year,” the analysts said.

Lower interest rates tend to make gold more attractive to investors because it lowers the opportunity cost of holding non-yielding assets like gold.

With the US Federal Reserve signaling a possible pivot to interest rate cuts, gold’s appeal is likely to strengthen, generating further flows into the market.

The decline of the US dollar is another critical factor in gold’s recent performance. Historically, gold prices and the US dollar have an inverse relationship.

As the dollar weakens, the price of gold in other currencies becomes more affordable, increasing global demand.

UBS expects the US dollar to continue to lose strength as a result of monetary easing and a weakening US economy. This weakening trend is expected to boost gold’s appeal, particularly in emerging markets, where currencies have been under pressure from high US interest rates.

In addition to macroeconomic factors, UBS analysts point to continued geopolitical uncertainties as a key driver of gold prices.

Geopolitical risks, such as the conflict in Ukraine and tensions in the Middle East, are expected to persist beyond the US presidential election.

These uncertainties increase gold’s role as a safe-haven asset, especially for investors seeking protection against market volatility.

UBS believes these geopolitical factors are likely to fuel further investment demand for gold.

This is reflected in the increasing flows of gold-backed exchange-traded funds (ETFs), which have risen steadily over the past few months.

Investment demand, particularly through gold ETFs, is poised to be a significant driver of gold’s next rally. UBS notes that inflows into these funds have gained momentum, reversing earlier outflows and reducing the decline since the start of the year.

As investors become more risk averse in light of the uncertain global economic outlook, gold ETFs are expected to attract increased interest.

Another critical source of demand for gold has been central banks, which continue to diversify their reserves away from the US dollar. This trend, often called “de-dollarization,” is expected to further boost gold prices.

UBS analysts suggest gold purchases by central banks are likely to remain robust as countries try to reduce their reliance on the US dollar amid heightened global tensions.

UBS forecasts that the price of gold could reach new highs next year, with a price target of $2,700 an ounce by mid-2025. This outlook is driven by the convergence of interest rate cuts, a weaker dollar and sustained geopolitical risks.

The brokerage sees potential for gold to outperform other asset classes, especially as traditional stocks face headwinds from a cooling global economy.