UBS Raises Gold Forecast to $3,800 by 2025 Due to Geopolitical Risks and Fed Rate Cuts

UBS has raised its gold price forecast to $3,800/oz by end-2025 and $3,900/oz by mid-2026, citing expectations of renewed Fed rate cuts amid soft US labor data. The investment bank also anticipates dollar weakness and geopolitical risks driving gold prices higher.

UBS Group has significantly increased its gold price forecast, predicting that the precious metal could reach $3,800 per ounce by the end of 2025 and $3,900 per ounce by mid-2026. The Swiss bank attributes this bullish outlook to expectations of renewed Federal Reserve rate cuts, a weakening U.S. dollar, and ongoing geopolitical risks.

UBS's latest forecast reflects a $300 increase for the end of 2025 and a $200 increase for mid-2026 compared to its previous estimates. The bank believes that the combination of Federal Reserve easing, a weaker dollar, and geopolitical uncertainties will continue to drive gold prices higher.

The gold market has shown strong upward momentum recently, with prices reaching a record high of $3,674.11 per ounce on Tuesday, representing a cumulative increase of over 39% for the year. As of the time of writing, gold prices are hovering around $3,644 per ounce.

UBS anticipates that by the end of 2025, total holdings in gold exchange-traded funds (ETFs) will exceed 3,900 tons, approaching the historical record of 3,915 tons set in October 2020. The bank expects central bank purchases of gold to remain robust at around 900 to 950 tons this year, slightly below last year's near-record level.

However, UBS also highlights key risks for gold. The bank warns that if inflation data unexpectedly rises, it may force the Federal Reserve to raise interest rates, potentially impacting gold prices.

UBS's bullish stance on gold is based on its assessment of the future macroeconomic environment. The bank expects the Federal Reserve to begin a cycle of interest rate cuts, which will directly lead to a weaker dollar, enhancing the attractiveness of gold priced in dollars. Geopolitical risks and the policy divergence between the U.S. government and the Federal Reserve are also key factors boosting gold's safe-haven value.

The global central bank gold purchasing frenzy is expected to continue, with UBS predicting that central bank gold purchases will remain strong this year at a level of 900 to 950 tons.