Gold has proven to be one of the top-performing assets of 2024, repeatedly reaching record highs amid deteriorating economic conditions and continuous debt issuance. According to recent analysis by a prominent bank, this upward trend is expected to persist, driven by the prospects of lower interest rates and escalating geopolitical tensions.

“Gold reached an all-time high of USD 2,607/oz earlier this month, marking an increase of over 25% year-to-date,” UBS analysts reported. “The rally is not solely driven by expectations of lower yields; macroeconomic and geopolitical uncertainties, coupled with central banks’ ongoing trend of diversifying away from the US dollar, have also played a significant role.”

The analysts pointed out that geopolitical tensions are likely to extend beyond the fourth quarter, with uncertainty surrounding the future U.S. government and its policies. They further emphasized unresolved conflicts in Ukraine and Gaza, with no clear resolutions in sight.

“We expect gold to remain a preferred hedge against both geopolitical risks and interest rate fluctuations,” the analysts explained. “Historically, gold has outperformed equities during times of elevated volatility, which has been evident in recent months, despite a less dovish outlook on Federal Reserve rate cuts.”

The bank maintains that the current rally has room to advance, projecting a price target of USD 2,700/oz by mid-2025.

“In addition to short-term drivers, we anticipate growing demand for gold ETFs in the coming months,” they noted. “According to official data from the World Gold Council, physically-backed gold ETFs saw their fourth consecutive month of inflows in August, bringing total holdings to nearly 3,182 metric tons, the highest since the beginning of the year. This has reduced the year-to-date outflow to 44 metric tons.”

The analysts recommended a 5% allocation to gold in a diversified USD-denominated portfolio as a hedge against broader market risks.

While gold has solidified its role as a store of value, silver has lagged behind, they observed.

“The gold-silver ratio, a key indicator of the relative value between the two metals, has risen above 85x after hitting lows of around 73x in May,” they said. “Weakness in base metals and broader commodities, as well as signs of softening demand for China’s solar exports and domestic installations, have likely contributed to this disparity.”

Despite these headwinds, the analysts remain optimistic about silver’s potential, stating, “We expect silver to benefit from a rising gold price environment, particularly as the Fed begins easing policy. The silver market is likely to remain in deficit over the coming years, leading to a gradual decline in above-ground inventories, which should provide fundamental support for prices and boost investor interest.”

They further predicted that silver could outperform gold over the next 12 months, with the gold-silver ratio potentially testing its long-term average of just below 70x.

Regarding the platinum group metals (PGMs), the analysts noted that “Expectations of more significant rate cuts by the Federal Reserve have recently provided a lift to PGM prices.” However, they acknowledged that “PGM prices have struggled to establish a clear directional trend this year.”

While they anticipate continued pressure on palladium prices due to market surpluses, they expect platinum prices to rise given the market’s apparent deficit. “Additionally, production costs favor higher prices, especially for platinum, with PGM production basket prices trading over 20% into the cost curve for South African miners,” they explained. “Challenges stem from a weaker vehicle market and reduced industrial demand.”

In conclusion, the analysts noted that PGMs are well-suited for volatility trading strategies.

In the short term, TradingView analyst Xanrox forecasted that gold could climb above USD 2,800, describing the yellow metal as being in a “historical uptrend.” He added, “Currently, the price is within an ascending blue parallel channel, which is highly bullish. I predict that gold will reach the top of this channel in the coming days or weeks, offering an 8% profit without leverage, whether you buy now or wait for a small intraday pullback. From an Elliott Wave perspective, we are in wave (3), typically the strongest wave.”

Ref: https://www.kitco.com/news/article/2024-09-23/gold-price-could-hit-2700-mid-2025-silver-will-outperform-gold-ubs