Gold costs to hit $2,200 and outperformance awaits silver, says UBS

Gold and silver are anticipated to climb additional in 2024 on expectations that the U.S. Federal Reserve will begin reducing rates of interest, UBS forecasts.

“We are expecting gold to be pushed higher by a Fed easing. Also this comes with a weaker dollar” mentioned the funding financial institution’s valuable metals strategist Joni Teves, who expects the steel to hit $2,200 per ounce by the top of the 12 months.

Gold costs are inclined to have an inverse relationship with rates of interest. As rates of interest dip, gold turns into extra interesting in comparison with different investments like bonds, which might yield weaker returns in a low rate of interest setting. 

In flip, decrease charges weaken the greenback, making gold cheaper for worldwide patrons, driving up demand.

Whereas there may be nonetheless a lot uncertainty on the timing and extent of price cuts, UBS maintained its expectations for the Federal Reserve to ease coverage. Final week, the Fed introduced its determination to leave rates unchanged in January, on prime of capturing down hopes of a price reduce in March. 

The bullion’s attraction as a protected haven asset has risen since Israel’s struggle with Hamas started on Oct. 7, which contributed to gold prices notching an all-time high of $2,100 an ounce last month.

“We do think investors will start to build allocations to gold in an environment where there is a lot of macro uncertainty [and] geopolitical risks,” mentioned Teves.

Prospects for gold’s “poorer cousin” are additionally optimistic, with silver heading in the right direction to “really, really shine.”

Silver shouldn’t be as widespread of a geopolitical and security haven in comparison with gold, which partly explains why it has underperformed gold in the previous few years, the strategist mentioned. However the tables might flip in its favor when the Fed eases.

“In a scenario where the Fed is easing, we think silver can do really well. It tends to outperform a move in gold,” Teves mentioned. “Silver has been underperforming gold quite a lot. So there is a lot of catching up to do and I think the move could be quite dramatic,” she added.

Silver’s efficiency is tied closely to the health of the overall economy as a consequence of its huge industrial functions. The valuable steel is often integrated within the manufacturing of cars, photo voltaic panels, jewellery and electronics.

Gold final traded at $2,052 per ounce, whereas silver was priced at $22.69 per ounce.