Gold is currently navigating headwinds generated by the Federal Reserve's tightening stance, yet strategists at UBS maintain that these pressures are insufficient to undermine the metal's long-term investment thesis.
On September 16, the Federal Reserve raised its federal funds rate target range by 25 basis points to 3.75%-4.00%, while signaling the possibility of another hike before year-end. UBS strategist Giovanni Staunovo characterized the decision as a "hawkish hike ending a prolonged pause," noting that rising US real interest rates and a stronger dollar will likely weigh on bullion prices in the near term. He also cautioned that the significant inflows into gold ETFs witnessed in August may be at risk of reversal.
However, Staunovo emphasized that this rate increase had been widely anticipated by markets and does not alter gold's underlying long-term value. He highlighted escalating global debt levels, expectations of a weaker US dollar over the medium term, and prospects for Fed rate cuts next year as core demand drivers. He views any pullback toward the $4,000 per ounce level as a strategic opportunity to increase positions.
Near-term correction unavoidable post-hike, yet structural bull case remains intact
The Fed's decision aligned with consensus expectations, but the latest dot plot revealed that most officials project at least one additional rate increase this year, reinforcing the hawkish tone. Staunovo stated that this backdrop "remains a headwind for gold in the near term" due to the rising opportunity cost of holding a non-yielding asset.
He also observed that gold ETFs recorded substantial net inflows in August, driven primarily by concerns over Fed independence and mounting government debt levels. Nevertheless, given the hawkish signal from this week's meeting, some of those positions could face profit-taking or redemption pressure.
Staunovo argues that short-term volatility obscures deeper structural support for gold. He lists persistent global debt expansion and fiscal sustainability worries, expectations of long-term dollar depreciation, the possibility of Fed easing next year, and ongoing geopolitical uncertainty as key bullish factors. He further noted that gold's resilience during periods of rising real interest rates suggests traditional rate-based valuation models "only capture part of the story."
Concerns regarding reserve asset accessibility, sanctions risk, and questions about fiscal credibility are prompting a gradual diversification away from dollar-denominated assets. Gold, as an asset independent of any institutional credit, stands to benefit from this shift.
Central bank buying underpins structural support, price targets set as high as $5,400
Central bank demand remains a crucial pillar for gold prices. Data indicates that the People's Bank of China added approximately 20 metric tons of gold in August, marking its 22nd consecutive month of purchases. The National Bank of Poland and the Central Bank of Uzbekistan each increased their reserves by roughly 8 metric tons.
Staunovo maintains his forecast for central bank purchases of 750 to 1,000 metric tons annually, which he believes will provide "important structural support" for prices. Based on the spot price of $4,342 per ounce as of September 18, UBS has established a series of staged price targets: $4,600 by December 2026, $5,000 by March 2027, $5,200 by June 2027, and $5,400 by September 2027.
Staunovo wrote: "We view gold's long-term investment value positively, and a pullback toward the $4,000 area would present a favorable opportunity to add to positions."