UBS has slashed its gold price projections by between $300 and $900 per ounce, pointing to what strategists described as a "double whammy" of firmer US economic data and a delayed timetable for Fed rate easing now moved out to 2027.
In a note, strategists Dominic Schnider, Giovanni Staunovo and Wayne Gordon said that resilient labour market reports and higher real yields have pressured the metal by shifting market expectations toward the possibility of a US rate hike this year. Those dynamics, UBS wrote, have reduced near-term gold momentum.
UBS highlighted momentum indicators that suggest prices "may continue to gravitate toward the USD 3,850-4,000/oz range in the near term." The bank also pointed out that gold's muted reaction to increased tensions between the US and Iran has prompted some profit-taking, a development that, in UBS's view, leaves prices more exposed to traditional macro drivers such as real yields and the US dollar.
Exchange-traded fund holdings recorded modest outflows recently, although UBS emphasised that positioning "remains far from extreme and leaves scope for renewed investor participation."
Despite trimming near-term forecasts, the bank retained a constructive view for gold over the next 12 months. UBS's base case assumes the Federal Reserve will cut rates by up to 50 basis points in 2027, alongside below-trend US growth, which forms part of the rationale for a longer-term positive stance.
UBS also cited scope for renewed US dollar weakness, pointing to the existence of large fiscal and external deficits as supporting that possibility. Central bank demand was flagged as another structural pillar underpinning UBS's outlook, with the bank expecting annual official-sector purchases to remain in the range of 750-1,000 metric tons.
Preliminary data for May, noted by UBS, showed the People's Bank of China adding 10 metric tons to its holdings and Uzbekistan's central bank purchasing nearly 9 metric tons.
UBS concluded that moves lower toward $3,850-$4,000/oz "may ultimately prove to be opportunities to build exposure rather than reasons to abandon it."
Summary
UBS reduced its short-term gold price forecasts by $300-$900/oz citing stronger US data and a pushed-out Fed easing timeline to 2027, while maintaining a constructive 12-month view supported by central bank buying and potential future dollar weakness.
Key points
- UBS lowered near-term gold forecasts by $300 to $900 per ounce due to stronger US economic indicators and a delayed Fed easing outlook.
- Strategists named were Dominic Schnider, Giovanni Staunovo and Wayne Gordon; momentum metrics point to prices drifting toward $3,850-$4,000/oz.
- Central bank purchases and the potential for US dollar weakness are cited as longer-term support; preliminary May data show China adding 10 metric tons and Uzbekistan nearly 9 metric tons.
Risks / Uncertainties
- Near-term pressure from resilient US labour market data and rising real yields could push gold toward $3,850-$4,000/oz - impacting bullion traders and commodity portfolios.
- Muted safe-haven response to geopolitical escalation (US-Iran) has encouraged profit-taking, increasing exposure of gold prices to macro factors such as the dollar and bond yields - relevant to currency and fixed-income markets.
- ETF outflows, though modest, create uncertainty about investor demand in the short term, which could affect liquidity and price volatility in the gold market.
Tags: gold, commodities, Fed, centralbanks, ETFs