Global markets are once again turning their attention to the forces of de-dollarization, and one major financial institution believes this shift could send gold prices to unprecedented levels within the next year.
Commodity and foreign exchange analysts at UBS Group have issued a fresh outlook suggesting that gold is benefiting from a resurgence in de-dollarization trades. With the United States facing significant fiscal challenges, the bank projects that the precious metal could climb above $5,400 per ounce by next summer.
Where the momentum is building
The UBS Chief Investment Office noted in a recent report that investor focus on the long-term shift away from the US dollar has intensified amid renewed concerns over America's fiscal outlook. The US Dollar Index has slipped 2.4% over the past month, reflecting this growing sentiment. While the dollar may find temporary support from Middle East conflicts and elevated oil prices, the bank argues that the broader trend of diversification away from the greenback remains firmly intact. Supporting factors include ongoing worries about the US fiscal trajectory, uncertainties surrounding trade policy, and mounting evidence that numerous nations are diversifying their reserve holdings away from dollar-denominated assets.
Analysts recommend that investors consider allocating capital to gold, broad commodities, and select global currencies to capitalize on this diversification wave.
Gold's dual engines: central banks and ETFs
UBS emphasized gold's potential in the current environment, stating that the metal's ongoing rally still has room to run. Gold is viewed as a clear beneficiary of de-dollarization, as investors regard bullion as a reliable store of value and an alternative to traditional reserve currencies. The metal has already gained approximately 15% this month, and the bank expects further gains as the dollar faces additional pressure.
The firm also anticipates that markets will scale back expectations for Federal Reserve rate hikes, which would provide additional support for gold prices. Recent data indicates sustained demand for precious metals, with gold ETF inflows having resumed and central bank purchases remaining robust. In July, a major Asian economy increased its gold reserves by 20 tonnes, marking the largest monthly increase since October 2023. UBS projects gold will reach $5,400 per ounce over the next 12 months.
Beyond gold: commodities and currency diversification
The bank also advises looking beyond gold to the broader commodities complex for diversification benefits. Gold is not the only asset that can preserve value when traditional currency purchasing power declines; a broad allocation to commodities can provide additional long-term return sources and help protect portfolios if rising inflation expectations challenge stocks and bonds. Oil demand remains strong and is expected to continue growing in the coming years, particularly in emerging markets. Industrial metals should also benefit from long-term demand related to electrification, the energy transition, and ongoing global AI infrastructure buildout.
The Chief Investment Office additionally recommends diversifying into select currencies. The current environment supports selective allocation to higher-yielding currencies, including the British pound and the Norwegian krone. The bank also favors the New Zealand dollar due to its central bank's hawkish policy stance, and the Chinese yuan, supported by strong export-driven foreign exchange inflows. Certain emerging market currencies may also offer carry trade opportunities.
As the long-term shift away from the dollar continues, allocating to gold, broad commodities, and selected currencies can help support returns and manage portfolio risk.
The medium-term outlook: challenging $5,000 by early 2027
In mid-August, UBS strategists indicated that falling real interest rates would drive investors back into gold this year, with a weaker dollar and robust central bank demand also providing support. In a client report, the Swiss banking giant noted that gold had successfully broken out of a recent $100 trading range, rising above the $4,250 resistance area for the first time in two months.
Institutional buying and ETF inflows from a major Asian economy reportedly supported the latest move, while recent coordinated efforts by the US and Japanese governments to stabilize the yen could help reduce the risk of US Treasury selloffs.
Strategists cautioned that near-term risks remain, particularly if US data stays strong, oil prices continue to fuel inflation concerns, or markets continue pricing a more hawkish Fed rate path. However, they noted that while the near-term backdrop may remain turbulent, the medium-to-long-term gold narrative is supported by several durable drivers. The bank expects gold prices to approach $5,000 per ounce in the first half of 2027.
UBS predicts that falling real interest rates will help reignite investment demand for the precious metal. The bank expects inflation to moderate gradually, allowing the Fed to hold rates steady this year and resume easing in 2027. This should create a more favorable backdrop for gold, as the shift toward lower policy rate expectations would likely push real yields down, weigh on the dollar, and help boost gold investment demand.
Twin tailwinds: dollar weakness and central bank buying
A weaker dollar and sustained diversification flows represent powerful medium-term tailwinds for gold. While the dollar may remain resilient in the near term, the substantial US fiscal and external deficits, combined with investors' already considerable allocation to dollar assets, suggest room for renewed weakness. Historically, a weaker dollar has been a strong tailwind for gold, and renewed focus on diversification away from the greenback should benefit the precious metal.
Meanwhile, sovereign gold purchases continue to provide a solid price floor for the market. Central bank demand has been an important support pillar even when private investment demand was subdued. The bank expects annual central bank purchases to remain elevated, driven by the long-term desire to reduce dollar asset exposure.
Central banks purchased 289 tonnes of gold in the second quarter, and UBS's internal forecast projects full-year 2026 purchases between 750 and 1,000 tonnes. While these flows alone may not be sufficient to push prices significantly higher, they help stabilize the market and offset weaknesses in areas such as jewelry demand.
Short-term volatility vs. long-term logic: buying the dips
The Swiss bank advises investors to distinguish between gold's short-term trading risks and its long-term investment rationale. Periods of decline toward $4,000 per ounce or below could ultimately prove to be opportunities for building strategic exposure. For investors who prefer physical assets, the bank continues to believe that an allocation in the mid-single-digit percentage range within a well-diversified portfolio is appropriate.
Notably, UBS had downgraded its 2026 gold price forecast in late May, citing persistent headwinds from high US Treasury yields and a strong dollar. At that time, analysts noted that the market was rediscovering the concept of opportunity cost, with gold's non-yielding characteristic becoming a more important consideration while real yields remained elevated.
Now, with fiscal concerns and de-dollarization trades resurging, UBS's stance has clearly shifted toward optimism.
Key takeaways
From a cautious downgrade in May to a $5,400 target today, the shift in UBS's outlook reflects the market's repricing of the de-dollarization narrative. High fiscal deficits, a structurally weaker dollar, and continued central bank gold purchases form the most solid foundation for gold's medium-term outlook. Meanwhile, cooling expectations for Fed rate hikes could serve as the catalyst for the next leg higher.
In an era where fiat currency purchasing power continues to erode, the combination of gold, commodities, and select currencies is increasingly becoming the preferred choice for funds seeking to hedge against uncertainty.
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