In a recent report, UBS, a leading global investment bank, has raised its gold price forecasts, expecting the precious metal to reach $2,800 per ounce by the end of 2025. The bank’s upward revision is attributed to stromg structural support and persistent demand for gold, driven by macroeconomic uncertainty, geopolitical risks, and increased allocations to the safe-haven asset.

Key Findings from the UBS Report

1. Gold Price Forecast: UBS has increased its 2024 forecast to $2,600/oz, up from the previous target of $2,500/oz. The bank expects gold to push to $2,800/oz by the end of 2025, with a long-term forecast of $2,241 in real terms.
2. Central Bank Demand: UBS expects central bank demand for gold to reach 950-1,000 metric tons in 2024, up from 800-850 metric tons previously. This surge in demand is attributed to central banks’ desire to diversify their foreign exchange reserves and preserve the value of their assets during economic uncertainty.
3. Geopolitical Tensions: Ongoing geopolitical tensions, including the approaching US election, conflicts in the Middle East and Ukraine, and US-China trade tensions, are expected to support gold as a hedge against financial instability and political conflicts.
4. Investor Sentiment: The report highlights that the private wealth community and long-term investors have yet to fully allocate to gold, suggesting that consensus upgrades to add gold or increase gold allocations could be the catalyst for further price increases.
5. Gold Mining Stocks: UBS has upgraded several gold mining stocks to a BUY rating and increased their target prices, as miners look attractive heading into FY25, with stocks under UBS coverage trading at FY25 EV/EBITDA of less than 5 and free cash flow yields of more than 10%.

Impact of Central Bank Gold Purchases on Prices and Investor Sentiment

When central banks buy gold, it signals their confidence in the metal as a reliable store of value and a safe-haven investment, boosting investor sentiment and driving up demand for gold.

Sustained periods of central bank gold purchases can contribute to a bull market in gold, as investors anticipate continued demand and price appreciation. Conversely, decreased buying or sales may lead to a bear market. Large-scale central bank gold purchases can also lead to price spikes, which may influence short-term trading decisions.

Mining Industry Outlook and Its Influence on Gold Prices

The mining industry outlook is centered on three key themes over the coming year: spot prices falling, unit costs rising, and miners tilting toward growth. Gold prices are expected to benefit from falling interest rates and increased demand from central banks and investors seeking safe-haven assets.

Gold and silver mining companies are poised to perform well in 2024 due to the “2x/FX effect,” where mining stocks are twice as leveraged to gold prices. This, combined with a weaker USD, could result in a threefold return for European investors.

Miners are taking several measures to mitigate the effects of high energy costs, including optimizing energy use, integrating renewable energy sources, and implementing energy-efficient technologies and practices.

With central banks increasing their gold purchases and investors yet to fully allocate to gold, the outlook for the precious metal remains bullish, with prices expected to reach new highs by 2025 if UBS analysis holds over the coming 18 months.

As the mining industry shifts its focus toward growth and cost optimization, gold mining stocks are should also benefit from these market conditions.

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.