Gold Prices Spike 10% On Rate Cut Speculation, According To UBS

(CTN News) – As a result of potential interest rate cuts, gold prices could close the year up to 10% above current levels, UBS strategists said.

In a note published on Friday, UBS called recent price movements “minor” in comparison with gold’s 15% gain through 2023 and said the Federal Reserve’s policy pivot “should not be overlooked.”

According to UBS strategists, gold remains above the psychological barrier of $2,000 per ounce and will rise to $2,250 by year’s end, despite near-term volatility.

In Scotiabank’s price guidance, analysts remained cautious. They said on Monday that they were adopting higher and silver prices for this and next year, and that they had increased their forecast for the year to $2,000 per ounce from $1,900.

Geopolitical instability and market uncertainty can boost the appeal as a “safe haven” asset, as can rising interest rates, which can make higher-yielding investments more attractive.

March’s interest rate cuts are becoming increasingly uncertain in the markets. As of right now, CME’s Fed Watch tool shows that the probability is around 48%, down from an all-time high of 81% just a week ago. As for this week’s economic releases, the personal consumption expenditures price index and fourth-quarter economic growth are still pending.

Traders are also looking forward to the Bank of Japan’s monetary policy meeting on Tuesday and the European Central Bank’s meeting on Thursday.

According to the World Council, gold reached several record highs late last year and closed at $2,078 per ounce. It was attributed to interest rate expectations and global volatility caused by the conflict between Israel and Hamas.

Spot gold declined 0.26% to $2,024 at 1pm ET on Monday.

Gold has also been a major purchase by central banks as they diversify their reserves in 2022 and 2023.

UBS said that 100 basis points of Fed cuts beginning in May would “put pressure on the US dollar and real interest rates, which should spark fresh demand, especially from exchange-traded gold funds.”

Gold continues to be a good hedging and diversification asset due to macroeconomic and geopolitical risks, according to UBS analyst.

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