Global investment bank UBS published a report Monday outlining its outlook for gold and the U.S. dollar, noting that gold prices have reached a new record high while the U.S. dollar has declined significantly as markets anticipate potential interest rate cuts from the Federal Reserve. The bank added that investors are increasingly pricing in the possibility of a 50-basis-point rate cut at this week’s meeting, influencing both currency and commodities markets.

The U.S. dollar index (DXY), which tracks the greenback against six major currencies, has dropped by around 5% since June, “while gold is trading near a new all-time high above USD 2,585 an ounce,” UBS explained, adding: “The precious metal benefits from lower U.S. rates, as they lower the opportunity cost of holding the non-yielding asset.” The bank further noted that market sentiment has been driven by expectations of Fed cuts despite inflation data showing an unexpected rise. According to CME Fedwatch data, the likelihood of a 50-basis-point rate cut has surged to 61%, up from just 14% earlier.

Looking forward, UBS anticipates continued downward pressure on the U.S. dollar as the Fed’s easing cycle progresses. The bank advised that investors hedge or reduce their exposure to the dollar, noting that other central banks are likely to cut rates less aggressively than the Fed. UBS said:

We expect the U.S. dollar to stay under pressure as yield differentials narrow.

Gold’s rally is also expected to continue, with UBS predicting that prices could rise to $2,700 per ounce by mid-2025, driven by strong investment demand and geopolitical uncertainties. UBS stated:

Gold’s rally has further to run … With upcoming Fed cuts reducing the opportunity cost of holding the non-interest-bearing asset, we expect gold prices to hit USD 2,700/oz by June next year.

“We also believe gold’s hedging properties make it an attractive proposition from a portfolio perspective amid macro and geopolitical uncertainties,” UBS further shared. “Gold has gained over 24% this year, and we continue to see higher prices driven by increased investment demand.” The investment bank noted that physically backed gold exchange-traded funds (ETFs) saw inflows for the fourth consecutive month in August, according to World Gold Council data. Total holdings have risen to nearly 3,182 metric tons, the highest level since the beginning of the year.

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