UBS expects gold and silver to rise further in 2024, amid expectations that the US Federal Reserve will begin lowering interest rates.
UBS precious metals strategist, Johnny Teves, said: We expect gold to rise due to the Federal Reserve’s easing, and the yellow metal will reach $2,200 per ounce by the end of the year, which comes with the weakness of the dollar.
The relationship between gold and interest
Gold prices tend to have an inverse relationship with interest rates, as as interest rates fall, gold becomes more attractive compared to alternative investments such as bonds, which would generate weaker returns in a low interest rate environment.
In turn, lower interest rates weaken the dollar, making gold cheaper for international buyers, which leads to higher demand.
While there is still a lot of uncertainty about the timing and extent of interest rate cuts, UBS maintained its expectations that the US Federal Reserve will ease policy.
Last week, the Fed announced its decision to leave interest rates unchanged in January, in addition to reducing hopes for a rate cut in March.
In a scenario where the Fed eases monetary policy, we think silver can do really well, tending to outperform gold.
Johnny Tevez
UBS strategist
Bullion and the war in Gaza and silver
The safe-haven appeal of bullion has increased since the Gaza war began on October 7, contributing to gold prices rising to an all-time high of $2,100 an ounce last month.
“We believe investors will start building allocations to gold in an environment where there is a lot of macro uncertainty and geopolitical risk,” Tevis said.
The prospects for gold's cheaper cousin are also optimistic, with silver on track to really shine.
The strategist said that silver is not popular as a geopolitical and safe haven compared to gold, which partly explains the reason for the poor performance compared to gold in the past few years, but things may turn in its favor when the US Federal Reserve facilitates its policies.
“In a scenario where the Fed is easing monetary policy, we think silver can do really well,” Teves said, adding that silver tends to outperform gold’s movement. “Silver has been a lot weaker than gold, so there is a lot to do,” Tevis said. I think this step could be very exciting.
Silver's performance is closely linked to the health of the overall economy due to its broad industrial applications, as the precious metal is commonly incorporated into the manufacture of cars, solar panels, jewelry, and electronics.
