Buy Gold as a Hedge Against These Risks: UBS

UBS analysts have reaffirmed their optimistic view on gold in a recent commentary, emphasizing its role as a safeguard against rising macroeconomic and geopolitical risks. They noted that gold prices have surged by 23% this year, reaching all-time highs driven by factors such as expectations of lower US yields and ongoing diversification of foreign reserves by central banks.

UBS recommends that investors allocate approximately 5% of their balanced USD portfolio to gold. The analysts pointed out that gold has historically outperformed equities during times of heightened market volatility, a pattern that has been evident again in recent months.

Although expectations for significant cuts to Federal Reserve rates have diminished following the latest US CPI data, gold continues to show resilience, particularly with support from interest rate reductions by the European Central Bank. After a brief dip in prices due to an unexpected rise in US core inflation, UBS interprets this as a temporary fluctuation.

The bank has set a mid-2025 target price of USD 2,700 per ounce for gold, a forecast bolstered by growing demand from gold exchange-traded funds (ETFs). In August, physically-backed gold ETFs experienced their fourth consecutive month of inflows, spurred by increasing demand for safe-haven assets and a cooling labor market in the US.

UBS highlighted significant inflows from North America, while Asia, particularly India, continues to perform well due to favorable tax and budget reforms. As part of its global asset allocation strategy, UBS maintains a “Most Preferred” stance on gold, asserting that its hedging attributes make it a vital component of a diversified investment strategy amid ongoing global economic uncertainty.