Swiss investment bank UBS published insights explaining why gold’s hedging properties remain attractive in an article released by its editorial team on Monday. Despite gold reaching a record high of $2,630 per ounce and a 27% rise in 2024, UBS believes the precious metal’s rally still has room to continue due to key economic and geopolitical drivers.

One of the main reasons for gold’s ongoing strength is the Federal Reserve’s recent 50-basis-point rate cut, which has lowered the opportunity cost of holding non-yielding assets, UBS detailed, emphasizing:

As returns on cash are eroded by this lower interest rate environment, more investor funds may end up redirected into assets like gold.

Additionally, UBS expects further rate cuts through 2024 and 2025. Heightened geopolitical tensions, particularly ongoing conflicts between Israel and Hezbollah, as well as between Ukraine and Russia, further strengthen gold’s appeal as a safe-haven asset.

Strong demand from both central banks and investors is also driving the rally. Central bank purchases now account for 25% of total gold demand, and gold exchange-traded funds (ETFs) have seen four consecutive months of inflows. UBS reaffirmed its bullish outlook, stating:

We remain Most Preferred on gold in our global strategy, with a target of USD 2,700/oz by mid-2025. Despite the rally, we believe gold’s hedging properties remain attractive.

“Alongside physical gold, investors may consider exposure through structured strategies, ETFs, or via gold miner equities,” UBS added.

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