UBS sees a 10% spike for gold this year as rate cut speculation swirls

UBS strategists predict that gold prices could
close the year up to 10% higher due to potential interest rate cuts,
despite a decline at the beginning of 2024. A USB note described
recent price moves as “minor” in the context of gold’s 15% climb
through 2023 and said the “power of the [Federal Reserve]’s policy pivot
should not be underestimated.”

Gold prices are influenced by various factors, such
as geopolitical instability and market uncertainty, which enhance the
appeal of gold as a “safe haven” asset. Markets are increasingly
uncertain that the Fed will begin interest rate cuts in March, and
current pricing drops that probability down to around 48%.
Gold reached record highs in 2023, closing at
$2,078 per ounce. Central banks, as they diversify their reserves, have
been a major buyer of gold in 2022 and 2023. UBS suggests that
central banks’ expectations of 100 basis points of Fed cuts starting in
May could put pressure on the US dollar and real interest rates,
driving fresh demand for gold, especially from exchange-traded gold
funds.