Global investment bank UBS has recently predicted that the price of Gold has “further to run” and could even hit $2,700 pr ounce by Jun of next year as the U.S. dollar weakens amid rate cuts from the Federal Reserve.
In a recently published report written by the UBS editorial team, the investmenr bank noted that the DXY index, which measures the performance of the U.S. dollar against six major other currencies, has lost 5% of its value since June while the precious metal rose to a new all-time high near $2,600 an ounce.
The precious metal, UBS wrote, has been benefitting from potentially lower interest rates, as they “lower the opportunity cost of holding the non-yielding asset.” Its rise comes amid a higher-than-expected reading for the US producer price index (PPI) and monthly core consumer inflation.
Markets, the firm wrote, appear to be focusing on media reports suggesting the Federal Reserve could cut interest rates by 50 basis points instead of 25 this week. They added:
In our view, overall inflation data have been good enough to allow the Fed to start cutting rates this week amid a softening labor market, but do not give officials a reason to cut aggressively. Data for retail sales and industrial production due Tuesday could potentially influence the Fed’s decision, with weak results likely to trigger a 50-basis-point cut.
The bank’s base case scenario isn’t of a recession, but rather of a soft landing that could lead to 100 basis points of interest rate reductions this year, and an additional 100 basis points next year.
If that happens, the precious metal could keep on seeing its value rise, while markets move to a lower-rate environment. UBS also noted that the growing US federal deciti is “likely to be a headwind” for the U.S. dollar over the long-term.
Gold, on the other hand, has been surging and seeng growing accumulation, with total gold exchange-traded fund holdings rebounding to nearly 3,182 metric tons this year. UBS’ team wrote:
With upcoming Fed cuts reducing the opportunity cost of holding the non-interest-bearing asset, we expect gold prices to hit USD 2,700/oz by June next year. We also believe gold’s hedging properties make it an attractive proposition from a portfolio perspective amid macro and geopolitical uncertainties.
As CryptoGlobe reported Societe Generale has shifted 100% of its commodity allocation to gold, driven by geopolitical risks and a weakening broader commodity market.
The French bank increased its gold holdings to 7% of its total asset allocation, reflecting a 40% quarter-over-quarter rise. This pivot toward gold signals growing confidence in the yellow metal as a safe-haven asset amid ongoing uncertainties in global markets.
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