After the gold price jumped significantly over the past week, UBS Global Wealth Management, together with other wealth managers, discuss the outlook and the benefits of including gold in investors’ portfolios.
After gold rose to its highest level in seven weeks, UBS
Global Wealth Management chief investment office believes
that the medium- to longer-term case for holding the yellow metal
remains strong, supported by lower real rates, a softer dollar,
and central bank buying.
Gold climbed above $4,250 per ounce for the first time since
June, breaking above its recent trading range of between
$4,000/oz and $4,100/oz. Reported Chinese institutional buying
and inflows into exchange-traded funds have supported the
latest price movement, while recent joint government efforts by
the US and Japan to stabilize the yen could have helped reduce
the risk of a sell-off in US Treasuries, according to UBS GWM
CIO.
However, near-term risks remain, especially if US data stay firm,
oil prices keep inflation concerns alive, or markets continue to
price in a more hawkish US Federal Reserve rate path, the wealth
manager said in a report.
But while the immediate backdrop could remain volatile, UBS
thinks the medium- to long-term case for gold appears to
be supported by several durable drivers. The firm expects
gold prices to rise toward $5,000/oz in the first half of 2027.
UBS continues to see a role for gold in diversified
portfolios.
Arun Sai, senior multi-asset strategist at Pictet Asset
Management has also upgraded from
neutral to overweight as investor demand is
strengthening and emerging market central banks continue to
increase reserves. He sees further upside for gold as real
interest rates gradually ease, eroding the opportunity cost of
holding a non-yielding asset.
UBS said lower real rates should revive investment demand
for gold. The metal does not pay income and higher real
yields increase the opportunity cost of holding it. But
UBS expects inflation to gradually moderate, allowing
the Fed to hold interest rates steady in
2026 before resuming easing in 2027. “This should create a
more favorable backdrop for gold, as a shift toward lower
policy-rate expectations would likely reduce real yields, weigh
on the US dollar, and help boost investment demand for gold,” UBS
said.
The US dollar could stay resilient in the near term, but
structural challenges including large US fiscal and external
deficits and already elevated investor allocations to dollar
assets mean that there is scope for renewed weakness, UBS said. A
weaker dollar has historically boosted gold, while a renewed
focus on diversification away from the dollar should benefit the
precious metal.
Central bank support
Central bank demand has also remained an important pillar of
support, even when private investment demand has been lackluster.
UBS expects annual central bank purchases to remain elevated,
supported by a long-term desire to reduce exposure to dollar
assets. Following a strong second quarter, when central banks
bought 289 metric tons of gold, the Swiss bank estimates
full-year purchases in the 750 to 1,000 metric ton range this
year. While these flows might not be enough to drive prices
sharply higher on their own, they can help stabilize the market
and offset weaker areas such as jewelry demand, the firm added.
According to the World Gold
Council, an industry group of gold mining companies, Chinese
jewelry demand fell by 32 per cent year-on-year in the first
quarter of 2026. Demand for bars and coins rose by 67 per cent to
a quarterly record of 207 metric tons. For the first half of the
year, the WGC saw plentiful bullion demand
but weak jewelry consumption. Demand also shifted in India
during the first quarter: jewelry demand fell by 19 per
cent, while bar-and-coin demand rose by 34 per cent to 62 metric
tons.
UBS thinks investors should separate near-term trading risk from
the longer-term investment case. In fact, periods of weakness
toward $4,000/oz or below could ultimately prove to be
opportunities to build exposure. For investors with an affinity
for real assets, the bank thinks a mid-single-digit gold
allocation is appropriate in a well-diversified portfolio.
Investors could also consider a broad exposure to commodities for
better portfolio diversification, the bank added.
See more about the precious metal here.