Eastern Buying Goes West
It is good to hear things previously stated many times in the GoldFix space these past two years finally being echoed by reputable banks. It can also be risky when a bank agrees with you. That said: UBS notes Central Banks and BRIC buying (aka They want the Gold) have raised the floor on Gold’s price; and financial drivers like lower rates may accelerateGold’s rise via western buying in 2025. Keep in mind, we and Goldman note the CB buying will slow in 2025 at these prices.
Much of this next year’s appreciation potential starting at $2800 and rising above will come from US western based buying which is driven by Rates and USD correlations. But we believe there is significant CB type buying a little under $2500 again. As such we included the UBS analysis on the USD as well. Barring a geopolitical/geo-economic event that creates urgency in 2025, that is the roadmap.
The best part about reading the UBS report as far as metals goes is: The Western world still mostly doesn’t get it (Gold’s remonetization as the only honest collateral left on earth) and the Banks are only now starting to talk about it.
Go for Gold
UBS expects gold to build on its gains in 2025. Lower interest rates, persistent geopolitical risks, and strong dollar-diversification trends likely see investor and central bank buying continue. Outside gold, they also see long-term opportunities in copper and other transition metals, with demand increasing alongside higher investment into power generation, storage, and electric transport.
Further Upside Ahead
Gold reached new record highs, with the price top ping USD 2,790/oz—a gain of 35% to 30 October 2024. Since Election Day, the metal has faced modest setbacks, as investors focused on the decisive nature of Trump’s victory and the potential benefits of Trump’s policies on US stocks.
The Bank expects the de-dollarization trend among central banks and private asset managers to continue. We estimate central banks bought around 900 metric tons of gold in 2024, and these volumes can be sustained well above the prior decade’s average of around 325 metric tons a year. Additionally, we see other traditional drivers of gold like lower real interest rates, fading dollar strength, and rising geopolitical uncertainties reasserting themselves in the year ahead.
They think prices could rise to new highs in 2025, underpinned by a step higher in exchange-traded funds inflows; the third quarter saw the strongest net inflows since 1Q22. If they are correct, a softer dollar will help matters.
USD: Strength has its limits
While the US dollar may stay well bid in the near term, UBS believes its valuation may now be overstretched. Accordingly, they recommend investors use periods of strength to consider reducing US dollar exposure through strategies such as hedging dollar assets, or switching USD cash and fixed income exposure to other currencies.
The report states:
The US dollar is entering a phase of uncertainty. Tax cuts and deregulation may attract capital inflows to US markets, while immigration controls could tighten the labor market, potentially keeping interest rates elevated. Tariffs might strengthen the dollar.
But the dollar appears overvalued based on fair value metrics they assert. The Bank believes markets are overestimating the likelihood of prolonged high rates by the Fed. We tend to agree with this. While Powell and the US Fed may slow cuts in the next quarter or so, the path to a weaker dollar is set in stone if Trump proceeds with his tariff plans in combination with a rediscovered need to manufacture and export goods again.
Additionally, worries about the US government debt trajectory or unpredictable foreign policy could undermine confidence in US Treasuries as a safe asset.
In the short term, new policy announcements might boost the dollar, but they anticipate it will approach 1.12 (versus the euro) by end-2025.
Overall, The Bank is moderately bullish with the catalyst for higher prices being Western and Financial this year as opposed to physical and de-dollarization driven last year For perspective, UBS was modest in their upgrades of Gold last year, but never behind the curve. Their take is a solid one from our perspective
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