The gold market has experienced exceptionally sharp fluctuations in recent weeks, which continued yesterday, Thursday – pushing the yellow metal just below the $5,000 mark again. Nevertheless, the sentiment among strategists at major bank UBS remains positive:
In a recent commentary, the analysts point out that gold, despite a temporary recovery, remains around 7% below its all-time high – but is up approximately 16% since the beginning of the year. For UBS, this is not a contradiction, but rather an expression of a market that is sorting itself out in the short term after a strong movement, while the overarching drivers remain intact.
From the bank’s perspective, the extreme phase of volatility is particularly striking: UBS speaks of the largest daily downward movement since 2013 and the largest daily upward movement since 2008. Such swings can briefly fuel doubts as to whether gold reliably fulfills its role as a hedge against political and financial tensions in every environment. However, UBS considers these concerns exaggerated and expects that the upward trend in gold can regain momentum.
Gold and Recent Volatility: Triggers, Dollar Focus, and Fed Expectations
UBS analysts cite the nomination of Kevin Warsh as the future head of the Federal Reserve at the end of January as the immediate trigger for the sharp price fluctuations. The personnel decision briefly reduced fears in the markets that a significantly more “dovish” candidate could accelerate the recent weakness of the US dollar. Previously, according to UBS, gold had also benefited from market participants being more concerned about the value of the US currency.
The message behind this: Short-term movements in currencies and interest rate expectations can strongly influence the gold price – sometimes regardless of whether anything changes in the longer-term fundamental factors. UBS emphasizes that it does not expect monetary policy to stop the gold rally, as has been observed multiple times in certain phases in the past. What is crucial, rather, is how the real interest rate environment – i.e., after deducting inflation – develops and how investors adjust positions.
Warsh is described in the statement as someone who, while advocating for a shrinking Fed balance sheet, has also supported lower interest rates in the past. For UBS, this is an important point: Even if long-term concerns about the dollar temporarily subside, an environment of falling real US interest rates could provide tailwinds for the gold market.
Real US Interest Rates as a Lever: Why UBS Expects New Demand for Gold ETFs
A central component of UBS’s argument is the connection between real US interest rates and demand for gold ETFs. Gold does not generate ongoing returns. If real interest rates rise significantly, the “opportunity cost” discussion intensifies: investors then receive relatively attractive real interest elsewhere and must more strongly weigh the forgo of interest payments. If real interest rates fall, however, this hurdle decreases.
UBS expects a further decline in real US interest rates in the coming months. According to the analysts, this could support investor demand for gold ETFs, as holding the metal appears less “expensive” compared to interest-bearing assets. In practice, this could mean that capital flows into exchange-traded products will increase again once the interest and inflation constellation provides the framework for it.
At the same time, UBS points out that another stabilizing factor remains: central banks are likely to continue increasing their gold reserves. This source of demand is often considered less short-term driven than speculative positioning and can represent an important counterforce during periods of increased volatility. For UBS, it is precisely these two elements – real interest rates and central bank purchases – that form the basis for a continuation of the gold trend.
UBS Target Price for Gold: $5,900
Against this backdrop, UBS is raising its own expectation for the year-end: The analysts forecast that gold could reach around $5,900 per ounce by year-end. The bank places this assessment within an overall positive outlook for commodities: both industrial metals and precious metals, in their view, have room to continue their strong developments. The main drivers are imbalances between supply and demand, geopolitical risks, and longer-term trends.
Also interesting is the note that commodities could play a more visible role in portfolios in 2026 – not as a one-way street, but as a result of an environment in which price movements are more shaped by structural factors and less by short-term sentiment changes. In this context, UBS also mentions other commodity segments such as copper, aluminum, and agricultural commodities, which – from the bank’s perspective – represent additional sources of return and can change the volatility structure of a commodity engagement.
Ultimately, the core message from UBS analysts remains clear: Despite exceptional volatility, they continue to see gold supported by an environment where real interest rates tend to fall and demand from the official sector remains robust. This exact combination explains why UBS prices in short-term turbulence for gold but maintains a positive fundamental outlook.
