Gold rally still has room to run, say banks
The price of gold crossed $4,000 for the first time on Wednesday and is up over $600 since early September. And yet, ‘the current rally still has room to run,’ said J Safra Sarasin.
The Basel-based private bank, which issued its outlook yesterday, set a 2026 year-end target of $4,500 per troy ounce for the precious metal, according to strategist Claudio Wewel.
Various major banks have hiked their gold forecasts in the past week. On Monday, Goldman Sachs raised its price forecast for December 2026 by $600 to $4,900 per ounce.
UBS expects gold to rise to $4,200 per ounce in the coming months, according to a chief investment office note from yesterday.
UBS thinks gold can benefit from the US real interest rate dropping to the lowest level since mid-2022.
‘We think real rates can fall further from here, potentially into negative territory. We think this will further undermine the appeal of the US dollar and therefore boost investment flows into bullion,’ the note said.
Gold has been supported by concerns regarding government debt sustainability in the US and other developed markets, and stands to benefit from geopolitical fragmentation.
However, unlike 2022-24, when central bank purchases accounted for a big bulk, exchange-traded funds are now in the driving seat, with the total amount of gold held by ETFs now above 3,800 tonnes, according to data from J Safra Sarasin, the World Gold Council and Macrobond.
This is close to peaks seen during the 2020 Covid selloff in risk assets and the months following Russia’s full-scale invasion of Ukraine in 2022.
‘Going forward, we expect gold demand to shift increasingly from individuals to pension funds and other asset managers,’ Wewel said.
He noted that Morgan Stanley’s chief investment officer, Mike Wilson, recently recommended a ‘60/20/20’ portfolio strategy that included 20% gold, putting it equal with fixed income.
‘While this may represent the upper end of the scale, increasing allocations to 5% would still double or triple gold holdings in asset managers’ portfolios,’ said Wewel.
He pointed out that gold experiences episodes of extremely strong performance, but has also gone through long periods where it posted a negative performance.
‘For gold to change its course, a major reversal of US policies would be required, yet we believe this is quite unlikely,’ said Wewel.
Source : Bloomberg
