UBS Group believes that gold has three key medium- to long-term supports: renewed investment demand driven by declining real interest rates, a weaker U.S. dollar encouraging portfolio diversification, and sustained high-level gold purchases by central banks. It recommends viewing any pullback in gold prices to USD 4,000 as a strategic opportunity to establish positions. The chief strategist at BCA Research also noted that gold prices may have further upside potential and could even reach new record highs.
After months of weakness, gold prices have staged a strong rebound, with UBS Group looking further ahead—gold could return to $5,000 by the first half of 2027.
Gold prices breached the $4,250 per ounce mark this week and reclaimed the $4,300 level today, reaching a new high since June. The rally decisively broke through the previous consolidation range of $4,000 to $4,100, delivering a weekly gain of over 5%—the largest weekly increase since early February. In pre-market trading on Wall Street today, gold mining stocks rose in unison. $AngloGold Ashanti (AU.US)$ 、 $Gold Fields (GFI.US)$ rose more than 6%, $Harmony Gold Mining (HMY.US)$ 、 $Coeur Mining (CDE.US)$ Rising more than 5%.
Sustained institutional buying, renewed inflows into gold ETFs, and reduced U.S. Treasury sell-off risks stemming from coordinated U.S.-Japan efforts to stabilize the yen exchange rate have collectively fueled this upward move. Noah Weisberger, Chief Strategist at BCA Research, noted that rising gold prices and stronger gold mining equities reflect deepening investor concerns about inflation outlook and the Federal Reserve’s ability to combat it, suggesting further upside potential for gold prices, possibly even reaching new all-time highs.
Regarding the medium- to long-term outlook, UBS Group maintains an optimistic stance, asserting that the structural drivers underpinning gold prices remain solid. It emphasizes distinguishing short-term trading risks from long-term investment logic and views any pullback in gold prices to $4,000 or below as an opportunity to establish strategic positions.
Gold prices rebounded strongly after bottoming out following a 30% decline from their peak.
In January, gold reached a record high above $5,600 per ounce amid a parabolic rally in precious metals, but the bull run quickly reversed course. As investors shifted focus toward semiconductor and artificial intelligence–related hot stocks, bullish sentiment toward gold cooled rapidly, and prices briefly fell below $4,000 last month—representing a cumulative decline of approximately 30% from the January peak.
However, market dynamics have shown a clear turnaround in recent weeks. As of this writing, international spot gold is trading at $4,285.49 per ounce, up $244 for the week—a gain of nearly 6%. Two of the past three weeks have recorded gains. The core driver behind this rebound lies in renewed market concerns over the persistence of inflation and the credibility of Federal Reserve policy.
Noah Weisberger pointed out that the shift in investor sentiment stems partly from market reactions following the July press conference by Federal Reserve Chair Kevin Warsh—when the Federal Open Market Committee decided to maintain the target range for the federal funds rate unchanged. Weisberger stated:
"The market has shown him little leniency; as long as inflation persists, any erosion of the Fed’s credibility will manifest in higher gold prices and gold mining equities."
UBS Group: Three Structural Pillars Support Medium- to Long-Term Gold Price Upside
In its latest report, UBS Group noted that although markets remain exposed to near-term volatility—particularly if U.S. economic data continues to show strength, oil prices sustain inflation concerns, or markets further price in a more hawkish Fed interest rate path—the medium- to long-term bullish case for gold rests on three key pillars.
First, declining real interest rates will reignite investment demand.
Gold does not generate yield; the higher the real yield, the greater the opportunity cost of holding gold. UBS Group expects inflation to gradually ease and forecasts that after the Federal Reserve holds rates steady this year, it will resume rate cuts in 2027. This anticipated shift in policy rates will lower real yields and weaken the U.S. dollar, creating a more favorable macroeconomic environment for gold investment demand.
Second, a weaker U.S. dollar and demand for portfolio diversification provide strong medium-term support.
UBS Group believes the U.S. dollar may remain resilient in the near term, but America’s substantial fiscal and current account deficits, combined with investors’ already elevated allocations to dollar-denominated assets, suggest room for renewed dollar weakness. Historically, a weaker dollar has been one of the strongest tailwinds for gold, and growing market focus on de-dollarization and diversified asset allocation further benefits gold.
Third, central bank gold purchases provide persistent underlying support to the market.
Even when private investment demand is weak, central bank demand remains a key pillar of the gold market. UBS Group expects that driven by the long-term desire to reduce exposure to U.S. dollar assets, annual central bank gold purchases will remain elevated. Central banks purchased 289 metric tons of gold in the second quarter of this year—a robust figure—and UBS maintains its forecast of 750 to 1,000 metric tons for the full year. While this volume alone may not be sufficient to drive a significant rally in gold prices, it is enough to stabilize the market and offset weakness in segments such as jewelry demand.
UBS Group explicitly notes that if gold prices retreat to $4,000 or below, this could ultimately prove to be an opportunity to establish strategic positions rather than a bearish signal. Against the backdrop of rising inflation expectations, uncertainty surrounding the Federal Reserve’s policy path, sustained central bank buying, and expectations of a medium-term dollar depreciation, the medium- to long-term investment case for gold remains intact.
Gold Mining Stocks: An Undervalued Proxy for Gold
For investors seeking to benefit from rising gold prices, gold mining stocks offer an alternative avenue beyond futures and ETFs, with potentially greater upside leverage.
According to MarketWatch, the largest gold mining stock ETF—the VanEck Gold Miners ETF (GDX)—has $25.4 billion in assets under management and passively holds shares of 59 mining companies across nine countries. FactSet data shows that GDX trades at a trailing price-to-earnings (P/E) ratio of 14.1x and a forward P/E ratio of 10.4x, compared to the S&P 500’s trailing P/E of 28.1x and forward P/E of 20.2x, indicating that gold mining stocks are significantly undervalued.
Noah Weisberger believes the undervaluation of gold mining stocks is "worth watching," noting that many companies have significantly improved their profit margins and strengthened their balance sheets. "The biggest risk comes from gold prices themselves, but gold miners represent a relatively clean equity play, which is precisely why we like them," he said.
He also specifically highlighted the diversification value of gold mining stocks:
"If you’re looking for a diversified bet that’s uncorrelated with AI themes, GDX shows no correlation with any AI-related theme we can identify. In a market rally led by cash-flow-negative companies, holding companies that generate cash flow as a ballast isn’t a bad idea."
Editor/lambor
