UBS has raised its 12-month gold target to $5,400 an ounce, arguing that the shift away from the US dollar is a structural trend rather than a short-term move. The bank points to falling dollar strength, central bank buying and fresh ETF inflows as the drivers, even as it flags Middle East tensions as a near-term offsetting force.
UBS expects gold to keep climbing as investors and central banks continue diversifying away from the US dollar, lifting its 12-month target to $5,400 an ounce. The bank frames de-dollarization as a trend to build a portfolio around, not trade around, with gold as its biggest beneficiary.
Dollar weakness seen as structural, not a wobble
The DXY dollar index has fallen 2.4% over the past month, UBS says, as renewed concerns over the US fiscal outlook add momentum to the de-dollarization theme. The bank cites worries over the US fiscal trajectory, trade policy uncertainty and growing evidence that a number of countries are diversifying their reserve holdings as the key drivers behind the move.
UBS acknowledges the dollar could find near-term support from Middle East tensions and higher oil prices. However, it expects the broader trend of gradual diversification and depreciation over the medium to longer term to remain in place.
Central bank buying and ETF inflows back the case for gold
Gold has risen around 15% this month. UBS expects further gains as pressure on the dollar persists and markets scale back expectations for Federal Reserve rate hikes. The bank points to renewed inflows into gold exchange-traded funds and continued central bank purchases as evidence of firm demand.
The People's Bank of China added 20 metric tons to its gold reserves in July, its largest monthly increase since October 2023. That official-sector buying, UBS argues, could keep providing a floor under bullion even if speculative positioning shifts.
Commodities and select currencies round out the trade
Beyond gold, UBS favors broad commodity exposure as a hedge against rising inflation expectations weighing on equities and bonds. It expects oil demand to keep growing in emerging markets, industrial metals to benefit from electrification and AI infrastructure buildout, and El Niño-linked weather disruption to potentially push agricultural prices higher.
On currencies, UBS keeps a Neutral stance on the euro but sees scope for EURUSD to move toward 1.20 over time. The bank favors selective exposure to the British pound, Norwegian krone, New Zealand dollar and Chinese yuan over broad dollar shorts, pointing to a more selective approach rather than a blanket bet against the reserve currency.
Source: InvestingLive
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