UBS expects gold to face short-term pressure after the Federal Reserve’s latest interest-rate decision. However, the bank remains constructive on the precious metal over the next 12 months.
Its longer-term view is supported by rising fiscal deficits, expectations for a weaker US dollar, and continued central bank demand.
Fed Rate Hike Creates Near-Term Pressure on Gold
The Federal Reserve raised its target interest-rate range by 25 basis points to 3.75%–4.00% on September 16.
Policymakers pointed to solid economic activity, resilient consumer spending and inflation that remains above target.
UBS strategist Giovanni Staunovo described the decision as a hawkish rate hike that ended the Fed’s extended pause.
Updated projections also suggested that most Federal Reserve policymakers expect at least one additional rate increase this year.
Higher Yields and Strong Dollar Weigh on Gold
According to UBS, the current environment could remain challenging for gold in the short term.
Higher US real yields increase the opportunity cost of holding gold because the precious metal does not generate interest.
A stronger US dollar can also pressure gold prices by making bullion more expensive for buyers using other currencies.
Staunovo said gold exchange-traded funds recorded strong inflows in August. Those flows were partly driven by concerns over rising debt levels and questions around Federal Reserve independence.
However, some of those positions could reverse following the more hawkish tone of the latest Fed meeting.
UBS Keeps Positive Long-Term Gold Outlook
Despite the short-term risks, UBS said the latest rate decision does not change its broader investment case for gold.
The Fed move was widely expected, according to the bank.
UBS continues to see several longer-term factors supporting the precious metal. These include rising global debt, expectations for a weaker dollar and the possibility of Federal Reserve rate cuts next year.
Geopolitical uncertainty could also continue to support investor demand for gold.
Central Banks Continue Buying Gold
Central bank demand remains another major source of support for the gold market.
The People’s Bank of China added roughly 20 metric tons of gold in August. That extended its buying streak to 22 consecutive months.
The National Bank of Poland and the Central Bank of Uzbekistan each added about 8 metric tons during the same period.
UBS expects annual central bank gold purchases to remain between 750 and 1,000 metric tons.
Staunovo said this level of demand should continue to provide structural support for gold prices.
Gold Remains Resilient Despite Higher Real Yields
Gold has also shown resilience during periods of rising real yields.
According to UBS, this suggests that traditional interest-rate-based valuation models do not fully explain the metal’s performance.
Other factors have become increasingly important.
These include concerns over reserve accessibility, sanctions risk and long-term fiscal sustainability.
Gold can also appeal to investors because it is not another institution’s liability.
This characteristic may support further diversification away from concentrated exposure to the US dollar.
UBS Raises Long-Term Gold Price Targets
UBS expects gold prices to continue rising over the coming year.
The bank forecasts gold at $4,600 per ounce by December 2026.
It then expects prices to reach $5,000 by March 2027, followed by $5,200 by June 2027.
By September 2027, UBS sees gold reaching $5,400 per ounce.
That compares with a spot gold price of about $4,312 on September 17.
Gold Pullbacks Could Attract Buyers
UBS continues to view the long-term investment case for gold as positive.
Staunovo said price declines toward $4,000 per ounce could create opportunities for investors looking to increase exposure.
For now, gold may remain volatile as markets react to Federal Reserve policy, real yields and movements in the US dollar.
However, UBS believes structural demand, central bank buying and long-term fiscal concerns could continue to support prices over the next 12 months.
