Gold hit an all-time high on Monday, and UBS is looking for more upside ahead.
1. The Fed’s recent 50 basis point rate cut has boosted enthusiasm for gold by lowering the opportunity cost of holding non-yielding assets. This is expected to be the start of a broader easing cycle, with additional 50 basis point cuts likely in 2024 and 100 basis point cuts in 2025. Lower interest rates could push investors towards gold as yields on cash decline.
2. Geopolitical tensions, especially in the Middle East and Ukraine, are escalating, making gold more attractive as a hedge against uncertainty. Recent military operations in Lebanon and Ukraine highlight ongoing conflicts, making gold a safer bet for investment portfolios.
3. Demand for gold remains strong from investors and central banks. Central bank purchases now account for about a quarter of total gold demand, compared to previous years. Investor interest in gold ETFs has also surged, with inflows continuing for a fourth straight month as the likelihood of a Fed rate cut grows.