UBS Predicts Gold Prices for 2024: What Are the Drivers and Risks?


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UBS Predicts Gold Prices for 2024:

Gold prices have been on a roller coaster ride in the past few years, reaching a record high of $2,135.39/oz in December 2023, before falling back to around $2,000/oz in January 2024. What are the factors that influence the price of gold, and what are the expectations for the future? In this article, we will review the latest forecast from UBS, one of the leading investment banks, and analyze the drivers and risks for gold prices in 2024 and beyond.

1. UBS Forecast: Gold Prices to Reach $2,200 by March 2024

UBS, which has a long history of providing gold research and analysis, has recently published its outlook for gold prices for 2024. According to UBS, gold prices are expected to rise to $2,200/oz by March 2024, and to average $2,150/oz for the whole year. UBS bases its forecast on three main assumptions:

·         The Federal Reserve will cut its interest rate by 25 basis points in June 2024, and will keep it at 0.25% until the end of the year. This will lower the opportunity cost of holding gold, and will weaken the US dollar, which is inversely correlated with gold prices.

·         The global economic recovery will be uneven and uncertain, as the coronavirus pandemic continues to pose challenges and risks. This will increase the demand for gold as a safe-haven asset, and as a hedge against inflation and currency devaluation.

·         The geopolitical tensions and conflicts will remain high, especially in the Middle East, Asia, and Europe. This will boost the demand for gold as a store of value and a protection against political and social unrest.

2. Drivers: Fed Rate Cuts, Weak Dollar, and Geopolitical Uncertainty

As mentioned above, UBS identifies three main drivers for the rise of gold prices in 2024: the Fed rate cuts, the weak dollar, and the geopolitical uncertainty. Let us examine each of these drivers in more detail:

·         The Fed rate cuts: The Federal Reserve, which is the central bank of the US, has a significant influence on the price of gold, as it sets the interest rate and the monetary policy for the world’s largest economy. The interest rate affects the opportunity cost of holding gold, which is a non-yielding asset, and the monetary policy affects the supply and demand of money, which affects the inflation and the exchange rate. Generally speaking, a lower interest rate and a looser monetary policy are positive for gold prices, as they reduce the attractiveness of other assets, such as bonds and stocks, and increase the inflation and the depreciation of the dollar, which make gold more valuable and appealing.

·         The weak dollar: The US dollar, which is the world’s reserve currency, has a strong and negative relationship with gold prices, as they are both seen as alternative stores of value and mediums of exchange. When the dollar weakens, gold prices tend to rise, as gold becomes cheaper and more attractive for investors who hold other currencies, and as gold preserves its purchasing power better than the dollar. The dollar can weaken for various reasons, such as lower interest rates, higher inflation, larger fiscal deficits, or lower confidence in the US economy or politics.

·         The geopolitical uncertainty: The geopolitical uncertainty, which refers to the instability and unpredictability of the international relations and events, has a positive impact on gold prices, as gold is considered as a safe-haven asset and a protection against risk and volatility. When the geopolitical uncertainty increases, gold prices tend to rise, as investors seek to preserve their wealth and diversify their portfolios away from riskier and more volatile assets, such as stocks and currencies. The geopolitical uncertainty can increase for various reasons, such as wars, conflicts, sanctions, trade disputes, elections, or protests.

3. Risks: Inflation, Vaccine Rollout, and Competition from Crypto

While UBS is bullish on gold prices for 2024, it also acknowledges that there are some risks and uncertainties that could limit or reverse the upward trend. Some of these risks are:

·         Inflation: Inflation, which is the general increase in the prices of goods and services, is usually seen as a positive factor for gold prices, as gold is a hedge against inflation and a store of value. However, if inflation rises too fast or too high, it could also hurt gold prices, as it could force the central banks to raise their interest rates or tighten their monetary policies, which would increase the opportunity cost of holding gold and strengthen the dollar. Moreover, if inflation erodes the real income and wealth of the consumers and investors, it could reduce their demand for gold and other discretionary items.

·         Vaccine rollout: The vaccine rollout, which is the distribution and administration of the coronavirus vaccines, is expected to have a positive impact on the global economic recovery and the public health situation. This could also have a negative impact on gold prices, as it could reduce the demand for gold as a safe-haven asset and as a hedge against uncertainty. Moreover, if the vaccine rollout is faster or more successful than expected, it could boost the market confidence and optimism, which would increase the appetite for riskier and more profitable assets, such as stocks and currencies.

·         Competition from crypto: The competition from crypto, which refers to the alternative and digital assets, such as Bitcoin and Ethereum, that use cryptography and blockchain technology, is another potential threat for gold prices, as crypto could challenge or replace gold as a store of value and a medium of exchange. Crypto has some advantages over gold, such as higher returns, lower costs, faster transactions, and greater accessibility and transparency. However, crypto also has some disadvantages, such as higher volatility, lower security, and greater regulation and taxation.

4. Conclusion and Recommendations

In conclusion, UBS predicts that gold prices will rise to $2,200/oz by March 2024, and will average $2,150/oz for the whole year, driven by the Fed rate cuts, the weak dollar, and the geopolitical uncertainty. However, UBS also warns that there are some risks and challenges that could limit or reverse the gold rally, such as inflation, vaccine rollout, and competition from crypto.

For the investors who are interested in gold, UBS recommends the following strategies:

·         Buy gold on dips, as the long-term trend is still positive and the short-term corrections are opportunities to enter the market at lower prices.

·         Diversify your portfolio, as gold is a good hedge against risk and volatility, and a good complement to other assets, such as stocks and bonds.

·         Monitor the market developments, as gold prices are sensitive to the changes in the interest rates, the exchange rates, the inflation, and the geopolitical events.

These are the UBS forecast and analysis for gold prices for 2024 and beyond. To stay updated on the latest gold news and trends, subscribe to our newsletter and follow us on social media.


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