Gold prices have mounted a strong rebound after months of sluggishness, with UBS setting its sights on a longer-term target: a return to $5,000 per ounce by the first half of 2027.
This week, gold broke through the $4,250 per ounce level, briefly surpassing the $4,300 mark to hit a new high since June, decisively breaking out of its previous consolidation range between $4,000 and $4,100. The weekly gain exceeded 5%, marking the largest such increase since early February. The rally has been driven by a combination of sustained institutional buying, inflows into gold ETFs, and reduced risks of US Treasury sell-offs following joint US-Japan efforts to stabilize the yen. Noah Weisberger, Chief Strategist at BCA Research, noted that the rise in gold prices and the strength of gold mining stocks reflect growing investor concern over the inflation outlook and the Federal Reserve's ability to combat it, suggesting further upside potential for gold, possibly even reaching new all-time highs.
Regarding the medium-to-long-term outlook, UBS maintains a bullish stance, arguing that the structural drivers supporting gold prices remain solid. The firm advises distinguishing between short-term trading risks and long-term investment logic, viewing price pullbacks to $4,000 or below as opportunities to build strategic positions.
Gold's Strong Rebound After a 30% Peak-to-Trough Decline
Earlier this year, in January, gold reached an all-time high above $5,600 per ounce during a parabolic rally, but the bull market quickly reversed course. As investors shifted their attention to hot semiconductor and AI-related stocks, bullish sentiment in gold cooled rapidly, with prices falling below $4,000 last month, marking a cumulative decline of roughly 30% from the January peak.
However, a significant turnaround has occurred over the past few weeks. As of this writing, spot gold is trading at $4,285.49 per ounce, gaining $244 for the week, an increase of nearly 6%, with upward moves in two of the last three weeks. The core logic driving this rebound is renewed market worry about the persistence of inflation and the credibility of Federal Reserve policy.
Weisberger pointed out that the shift in investor sentiment partly stems from the market's reaction to Fed Chairman Kevin Warsh's press conference following the July meeting, when the FOMC decided to hold the federal funds rate target range steady. Weisberger stated: "The market hasn't given him much leeway. As long as inflation persists, any erosion of the Fed's credibility will be reflected in higher gold prices and gold mining stock prices."
UBS: Three Structural Pillars Support Gold's Medium-to-Long-Term Uptrend
In its latest report, UBS noted that while short-term market volatility risks remain—especially if strong US economic data, oil prices sustaining inflation fears, or further market pricing of a more hawkish Fed rate path occur—the medium-to-long-term case for gold is supported by three pillars.
First, declining real interest rates are expected to rekindle investment demand. Gold generates no yield, so higher real rates increase the opportunity cost of holding it. UBS expects inflation to gradually ease, and after the Fed holds rates steady this year, it will resume cutting them in 2027. The expected shift in the policy rate outlook will lower real yields and weigh on the US dollar, creating a more favorable macroeconomic environment for gold investment demand.
Second, a weaker US dollar and diversification needs provide strong medium-term support. UBS believes that while the dollar may show near-term resilience, the US's large fiscal and current account deficits, along with investors' already high allocation to dollar assets, suggest room for the dollar to weaken again. Historically, a weaker dollar is the most powerful tailwind for gold, and increased market attention to de-dollarization diversification also benefits the metal.
Third, central bank purchases provide a durable floor for the market. Even when private investment demand is weak, central bank demand remains a key support for the gold market. UBS expects annual central bank buying to remain elevated, driven by the long-term desire to reduce dollar asset exposure. Central bank purchases totaled 289 metric tons in the second quarter, a strong performance, and UBS maintains its forecast for full-year purchases of between 750 and 1,000 metric tons. While this scale alone is not enough to drive a sharp price surge, it is sufficient to stabilize the market and offset weakness in areas like jewelry demand.
UBS explicitly states that gold price pullbacks to $4,000 or below may ultimately prove to be opportunities to build strategic positions, rather than bearish signals. In the context of rising inflation expectations, uncertainty about the Fed's policy path, ongoing central bank accumulation, and expectations of a medium-term dollar decline, gold's medium-to-long-term investment thesis remains intact.
Gold Mining Stocks: An Undervalued Alternative to Gold
For investors seeking to benefit from a gold rally, gold mining stocks offer another path beyond futures and ETFs, and potentially with greater leverage.
According to MarketWatch, the largest gold mining ETF, the VanEck Gold Miners ETF (GDX), manages $25.4 billion in assets and holds 59 mining stocks from nine countries passively. FactSet data shows that GDX trades at a trailing P/E ratio of 14.1 times and a forward P/E ratio of 10.4 times, compared to the S&P 500's trailing P/E of 28.1 times and forward P/E of 20.2 times, indicating that gold mining stocks are significantly undervalued.
Weisberger believes the low valuation of gold miners is "worth noting," and many companies have significantly improved profit margins and balance sheets. "The biggest risk comes from the gold price itself, but gold mining stocks are a fairly clean equity play, which is why we like them," he said. He also highlighted the diversification value of gold miners: "If you're looking for a diversified bet that's uncorrelated with the AI theme, GDX shows no correlation with any AI theme we can identify. In a market rally driven by cash-flow-negative companies, holding companies that generate cash flow as a ballast is not a bad thing."
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