Gold has not played the safe haven role many market participants expected since the outbreak of the Iran conflict. Nevertheless, the major Swiss bank UBS maintains its positive assessment for the precious metal. Despite the recent sideways movement, analysts continue to see gold on track towards $5,900 to $6,200 per ounce.
From their perspective, this is driven less by direct war effects and more by the interplay of macroeconomic risks, monetary policy outlook, robust demand, and structural supply constraints.
Initially, the discrepancy between price behavior and expectations is striking. Since the beginning of the conflict with Iran, gold has not managed to sustainably break above $5,200 per ounce. The classic flight to safety thus initially failed to materialize. UBS points out that this behavior is comparable to previous geopolitical crises. In such phases, investors often first seek liquidity or switch to other asset classes like energy, instead of immediately reallocating permanently to gold.
Gold reacts cautiously to geopolitical escalation in the short term
This very point is crucial for the current assessment of gold price development. While the precious metal gained 65% last year, with geopolitical risks, falling real interest rates, and debt fears providing additional tailwinds, the market is initially more cautious this time. UBS reminds that gold also retreated after an initial rise in previous war phases. After the start of the Russia-Ukraine war in 2022, the price initially rose by 15%, but later fell again by 15 to 18% when the US Federal Reserve raised interest rates. Similar patterns were observed in the Gulf War and the Iraq War, according to UBS: gold initially gained 17% and 19% respectively, before prices retreated as tensions eased.
For the bank, however, this is not an argument against gold, but rather an indication that geopolitical events usually do not act in isolation. In the short term, higher energy prices, inflation concerns, a stronger US dollar, and fears of tighter monetary policy are currently slowing things down. All of this initially weighs on gold because higher yields and a strong dollar increase the opportunity cost of the interest-free precious metal.
UBS bets on macro effects for gold, not war euphoria
Precisely for this reason, UBS argues that gold hedges more against the broader consequences of geopolitical conflicts than against military events themselves. The focus is on currency depreciation, rising budget deficits, economic slowdown, and general uncertainty in financial markets. Should the conflict between the US and Iran prolong, the risk of negative economic impacts also increases from the analysts’ perspective. This is precisely what could strengthen the hedging demand for gold again.
In addition, there is the monetary policy perspective. UBS assumes that the US Federal Reserve will not switch to a new tightening mode despite recently robust labor market data and somewhat restrictive signals from the FOMC. Instead of knee-jerk rate hikes, analysts expect the Fed to carefully monitor inflation risks while adhering to an easing path. Specifically, UBS expects two rate cuts of 25 basis points each by the end of September. A weaker US dollar and falling real interest rates would further support gold in this scenario.
The experts had previously emphasized that the fundamental drivers for gold remain intact once the recent volatility subsides. For the expected rise to up to $6,200 per ounce, they cite central bank purchases, large fiscal deficits, lower US real interest rates, and ongoing geopolitical risks as further supports.
Robust gold demand meets stagnant supply
In addition to macro and monetary policy, UBS particularly highlights the demand base. Analysts point out that while ETF investors slightly reduced their gold holdings at the beginning of the month, positions have recently shown more stability. At the same time, hedge funds have moderately increased their net positioning in gold. In addition, the bank notes continued purchases by central banks and growing investment demand.
Structurally, demand for gold also remains high, according to UBS. Data from the World Gold Council shows that total gold demand exceeded 5,000 tonnes for the first time in 2025. The bank expects a further increase in 2026. As a long-term factor, the Swiss bank also cites growing incomes in Asia, which are expected to support demand for gold jewelry. Thus, the market does not rest on a single pillar of demand, but on several segments simultaneously.
On the supply side, however, UBS sees little dynamism. While high prices could encourage additional exploration and project development, the bank believes supply remains rather sluggish. In this context, reference is made to an estimate by Wood Mackenzie, according to which around 80 mines will have exhausted their current production plans by 2028. For gold, this means that a growing market meets a limited and slowly reacting supply.
Gold remains a strategic diversifier for UBS
Overall, this results in a continued constructive outlook for gold for UBS. The bank does not interpret the short-term weakness since the beginning of the Iran conflict as a sign of weakening fundamentals, but as a temporary reaction to dollar strength, inflation concerns, and interest rate uncertainty. In the longer term, the arguments for higher prices outweigh, from the analysts’ perspective.
These include high government debt, efforts by central banks and global investors to diversify more broadly away from the US dollar, and ongoing political and economic uncertainty. In this environment, gold remains an effective instrument for portfolio diversification and a way to hedge against various market and economic risks for UBS. This is precisely why the bank maintains its positive outlook – even if the market does not yet grant the precious metal its next major breakout in the short term.
