A newly released research report by UBS indicates that although high opportunity costs have weighed on precious metals in the short term, gold prices are expected to challenge the $5,000 per ounce mark again in the first half of 2027, driven by falling real interest rates, a weakening US dollar, and continuous purchases by global central banks. Recently, gold prices have strongly broken out of a roughly $100 trading range and firmly established themselves above $4,250 for the first time in two months. During this period, buying from Chinese institutions, net inflows into exchange-traded funds, and macroeconomic events such as the joint US-Japan intervention to stabilize the yen have all provided strong support for this rally.
In terms of short-term market performance, gold still faces numerous uncertainties. If US economic data continues to beat expectations, high oil prices trigger inflation concerns, or the market further prices in a more hawkish interest rate path from the Federal Reserve, gold prices could face downward pressure. In fact, due to the sustained pressure from high US Treasury yields and a strong dollar, the bank downgraded its year-end 2026 gold price forecast from $5,900 to $5,500 in late May. At that time, the market reassessed the opportunity cost of non-yielding assets, leading to a temporary decline in gold's attractiveness.
Over a longer timeframe, the evolution of the macroeconomic environment is gradually creating more favorable conditions for precious metals. As inflation gradually cools, the Federal Reserve is expected to restart its easing cycle in 2027 after maintaining stable interest rates. A shift in policy rate expectations typically depresses real yields and drags down the US dollar, thereby directly stimulating investors' demand for gold allocation. Although the US dollar may show short-term resilience, the massive twin US fiscal and current account deficits, coupled with investors' overweight position in US dollar assets, imply that the greenback still has room to weaken in the medium to long term. Historically, a weak US dollar has often coincided with strong gold prices. Coupled with the global trend of de-dollarization and the deepening of asset diversification, this will further solidify the bullish logic for precious metals.
On the demand side, continuous purchases by sovereign institutions constitute a solid floor for gold prices. Even if private investment demand is temporarily sluggish, the high-intensity gold-buying pace maintained by central banks to reduce their exposure to US dollar assets remains the core pillar of the market. Data shows that central banks purchased a total of 289 tons of gold in the second quarter, and internal estimates indicate that the annual gold purchase scale for 2026 is expected to remain at a high level of 750 to 1,000 tons. While this scale of sovereign fund inflows may not independently drive a price surge, it is sufficient to effectively offset the impact of weak demand in consumption sectors such as jewelry, playing a crucial role in stabilizing the market.
Regarding investment strategies, UBS recommends decoupling short-term volatility from long-term logic. If gold prices pull back to $4,000 per ounce or lower, it will be seen as an excellent opportunity to establish strategic positions. For investors who prefer physical assets, maintaining a mid-single-digit percentage allocation to gold in a diversified investment portfolio remains highly reasonable.
