UBS Sees Near-Term Gold Volatility on Hawkish Fed, Remains Bullish on Long-Term Outlook

Gold prices face near-term headwinds from a more aggressive Federal Reserve, but the long-term investment case for the metal remains positive, according to a new analysis from UBS. The bank anticipates short-term price volatility but is constructive on its 12-month outlook, citing structural support from central bank buying and expectations for a weaker U.S. dollar.

Hawkish Fed Creates Pressure

The primary near-term challenge for gold comes from the Federal Reserve, which raised its target interest rate range by 25 basis points to 3.75-4.00% on September 16. In a note to clients, UBS strategist Giovanni Staunovo described the move as a "hawkish hike," noting that updated projections show most policymakers anticipate at least one more rate increase this year.

This monetary policy stance creates a difficult environment for gold, as elevated U.S. real yields and a stronger dollar increase the opportunity cost of holding the non-yielding asset. Staunovo noted that this could trigger outflows from gold-backed ETFs, which had seen solid inflows in August amid concerns over rising debt levels.

Central Bank Buying Provides Structural Support

Despite the immediate pressure, UBS believes the long-term fundamentals for gold remain intact. A key pillar of support is persistent demand from global central banks, which are diversifying their reserves away from the U.S. dollar.

Recent central bank activity highlights this trend:

Ad

• The People’s Bank of China added approximately 20 metric tons of gold in August, its 22nd consecutive month of purchases.
• The National Bank of Poland and the central bank of Uzbekistan each added about 8 metric tons.

UBS stated it continues to expect annual central bank purchases to total between 750 and 1,000 metric tons, providing a significant source of structural demand for the precious metal.

Long-Term Outlook and Price Forecasts

Looking ahead, UBS identified several factors that support its constructive long-term view, including rising global debt, geopolitical uncertainty, and the likelihood of Fed rate cuts next year. The bank also cited concerns over reserve accessibility and sanctions risk as drivers for diversification into gold.

Reflecting this outlook, UBS issued a long-term price forecast that sees gold reaching $4,600 per ounce by December 2026 and rising to $5,400 per ounce by September 2027. The bank suggests that any price pullbacks toward the $4,000 level would present opportunities for investors to add exposure.