Fed easing, geopolitical turmoil, rising demand will combine to push gold to $6,200/oz by mid-year – UBS
Fed easing, geopolitical turmoil, rising demand will combine to push gold to $6,200/oz by mid-year – UBS
By Ernest Hoffman
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Updated:
(Kitco News) – Gold has yet to reflect the full impact of the ongoing geopolitical escalation surrounding Iran, and once the Fed’s easing rate path and the overall market’s rising demand are considered, prices are likely to gain an additional $1,000 per ounce by June, according to analysts at UBS.
“Despite the relatively muted response of gold to the latest rise in geopolitical tensions, we think prices can rise further,” the analysts wrote on Monday. “Our forecast is for the precious metal to reach USD 6,200/oz in the coming months as the key drivers underpinning its strong rally remain in place.”
UBS said they expect geopolitical risks to remain elevated. “With two aircraft carriers, fighter jets, and refueling tankers reportedly stationed in the region, the US military buildup is now bigger than that off the coast of Venezuela in the weeks before Trump ousted Nicolas Maduro at the start of this year,” the analysts noted. “Whether an agreement with Iran can be reached remains to be seen, as military action against Iran in the near term seems increasingly likely.”
“Broadly speaking, geopolitical uncertainty is unlikely to diminish given Trump’s approach to foreign affairs,” they added. “While geopolitical events do not tend to have a lasting impact on global markets, they can trigger temporary spikes in volatility, supporting demand for portfolio hedges like gold.”
UBS said the Fed’s easing regime should also continue to support gold prices. “A weaker US dollar and lower US real interest rates are supportive of gold, and we believe this macro environment remains intact as the Federal Reserve has more to go in its easing cycle,” they said. “Despite stronger recent jobs data and some hawkish elements in the latest FOMC minutes, easing inflation pressure in the coming months and a more dovish personnel profile at the Fed later this year should support additional rate cuts. We expect two 25-basis-point rate reductions by the end of September.”
The analysts also expect gold demand to rise further in 2026. “Data from the World Gold Council showed that total gold demand exceeded 5,000 metric tons for the first time in 2025, and we expect demand to pick up further, supported by rising investment activity and robust central bank purchases,” they said. “Higher incomes in Asia should also underpin longer-term structural demand for gold jewelry. Supply, meanwhile, has been stagnant. While strong gold prices may stimulate mine exploration and development, Wood Mackenzie estimates that 80 mines will exhaust their current production plans by 2028.”
UBS said all this adds up to a very supportive environment for continued gold price appreciation.
“[W]e maintain our Attractive view on gold, and view the yellow metal as an effective portfolio diversifier that can help hedge against a range of market and economic risks,” the analysts said. “Investors with an affinity for gold could consider an up to mid-single-digit allocation in a diversified portfolio.”
On Feb. 16, Dominic Schnider, Head of Commodities & APAC Forex CIO at UBS Wealth Management, said that as volatility subsides, gold and other key commodities will enjoy supportive fundamentals.
“Precious metals prices, while volatile, rose in January as political, geopolitical, and economic uncertainties drove ‘safe-haven’ demand,” Schnider wrote in a commodity update. He also noted that copper hit a record high in late January before consolidating, while oil prices were boosted by short-term supply disruptions in the U.S. and Kazakhstan, along with dollar weakness and Middle East tensions.
Schnider said that as the recent volatility continues to subside, UBS believes the fundamentals for gold and other key commodities remain supportive.
“We see gold resuming its climb, rising as high as USD 6,200/oz by mid-year, supported by central bank and investor demand, large fiscal deficits, lower real US interest rates, and geopolitical risks,” he said. “We project further supply shortages for copper and aluminum that should support prices over the medium term, while structural drivers (e.g., electrification) underpin long-term demand.”
Schnider suggested investors with no gold in their portfolio would do well to add some, while those holding a substantial amount consider diversifying into other commodities.
“For investors with an affinity for gold, we believe a modest allocation can enhance diversification and buffer against systemic risks,” he wrote. “For investors with substantial allocations and significant unrealized profits in gold, broadening commodity exposure to include copper, aluminum, and agricultural assets can help diversify sources of future return in our view.”
“Commodities are set to play a more prominent role in portfolios in 2026, in our view, offering diversification amid supply-demand imbalances, geopolitical risks, and the global energy transition,” Schnider said. “We like broad commodity exposure, and continue to favor gold, which we see as an attractive hedge.”
Schnider’s $6,200 per ounce price forecast represents a major upgrade from where he saw the yellow metal just one month ago. On Jan. 5, he wrote that central bank buying, growing fiscal deficits, lower U.S. interest rates, and ongoing geopolitical risks would propel gold prices to $5,000 by the end of the first quarter.
“Commodities are set to play a more prominent role in portfolios in 2026,” Schnider wrote. “Within the asset class, we see particular opportunities in copper, aluminum, and agriculture, while gold remains a valuable portfolio diversifier.”
He said that tight supply and rising demand will likely support higher prices for many commodities in 2026, and that he expects the gold rally to continue this year. “Gold should post further gains, in our view, supported by central bank buying, large fiscal deficits, lower US real interest rates, and ongoing geopolitical risks,” he said.
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