Despite growing skepticism about gold's safe-haven status, UBS believes that its current period of underperformance could mark the starting point for the next rally to new highs. According to the bank's global precious metals review report released on March 17 by strategist Joni Teves, the core factors supporting the gold bull market remain intact. The trend of investors continuously increasing their allocations has not reversed, and gold is expected to set new record highs this year. The report suggests that the current pressure on gold prices from high real interest rates and a strong US dollar represents short-term noise. Any price pullbacks should be viewed as opportunities for investors to build positions. This stance comes amid market doubts about gold's safe-haven qualities. Since the start of the year, gold price volatility has surged sharply, yet its performance during periods of heightened geopolitical risk has been lackluster. This counter-intuitive price action has led some market participants to worry about gold's long-term trend. UBS argues these concerns are overblown and that gold's function as a portfolio diversification tool remains undamaged.

**Gold's "Failure"? A Case of Short-Term Macro Variables Dominating** A major recent market puzzle has been why rising geopolitical risks have not led to sustained gains in gold prices. UBS points out that this "failure" is more a result of a short-term shift in pricing logic. On one hand, rising real rates and a strengthening US dollar create a dual headwind. Higher real rates increase the opportunity cost of holding gold, while dollar appreciation directly weighs on the dollar-denominated gold price. On the other hand, the market is currently focused more on the narrative chain of "rising oil prices → elevated inflation → Fed maintaining tight policy," rather than the path of "oil price shock → economic slowdown → policy pivot." This singular narrative has temporarily weakened gold's macro hedging properties. In other words, gold has not become ineffective; it is merely being temporarily suppressed by stronger macro variables.

**Safe-Haven Logic Intact, But Its Mode of Action Has Changed** The report emphasizes a common market misconception about gold: viewing it as an "immediate reaction asset" to geopolitical conflicts. Historical experience shows that gold's reaction to geopolitics is often non-linear: - Short-term conflict escalation can indeed trigger rapid price increases. - However, such rallies are typically difficult to sustain and often see prices retrace gains. - The real impact lies in conflicts reinforcing investors' long-term willingness to allocate to gold. Therefore, the significance of geopolitical risk for gold lies not in triggering a tactical trading rally, but in boosting its strategic weight within global asset allocations.

**Impact of Oil Price Paths Under Three Scenarios on Gold** Based on different assumptions about the situation in the Strait of Hormuz, analysts constructed three scenario frameworks. In the most optimistic scenario, where tensions de-escalate quickly, the impact on oil prices would be relatively limited. A medium supply disruption of around 1 million barrels per day would exert more substantial upward pressure on the market. In the most pessimistic scenario—where supply disruptions persist for an extended period—Brent crude could rise to around $120 per barrel within the month and potentially break above $150 in the second quarter. The normalization of oil flows through the Strait of Hormuz will be the core variable determining price trends and is the most closely watched risk node for the market currently. For gold, UBS believes the near-term reaction could be complex—if real rates and the dollar continue to strengthen, gold prices could fall further. However, UBS views any pullback as an opportunity for investors to build long-term gold allocations. The persistence of geopolitical tensions will ultimately support strategic demand for gold as a portfolio diversifier. Furthermore, if an economic growth slowdown prompts fiscal and/or monetary stimulus measures, it would create upside risks for gold.

**Core Driver of This Gold Bull Market: Portfolio Re-allocation** UBS argues that unlike previous gold cycles driven by inflation or dollar cycles, the core driver of the current rally is the ongoing increase in gold's allocation weight within global investment portfolios. This trend is underpinned by deeper macro changes: - The long-term persistence of global uncertainties (geopolitical, policy, growth). - Declining hedging efficiency of traditional stock-bond portfolios. - Rising investor demand for "real assets." Within this framework, gold is no longer just a hedging tool but is gradually becoming part of strategic asset allocation. UBS also notes that persistently high price volatility could challenge diversification inflows if maintained long-term. However, gold volatility has already retreated from its highs and is normalizing relative to the VIX index. The report suggests the current consolidation phase helps build solid support at higher price levels, creating a favorable starting point for market participants to re-enter and accumulate positions ahead of the next leg higher.

**Key Inflection Point: Growth Pressures and Policy Response** Despite short-term pressure, UBS believes the medium to long-term case for higher gold prices remains clear, hinging on two core variables: 1. Potential weakening on the growth front: High oil prices and tight monetary conditions may gradually erode global economic growth momentum. 2. A被动 policy pivot: Should growth slow noticeably, fiscal and monetary policies could shift towards easing. This combination—falling real rates + improving liquidity—would reopen the path for gold's ascent. It is precisely based on this logic that UBS maintains its judgment: gold prices are still likely to reach new highs within the year.

**Silver Follows Gold; Platinum Group Metals Supported by Tight Supply** Regarding other precious metals, UBS's overall assessment remains unchanged. Silver, platinum, and palladium are all in a consolidation phase with price pressure. However, considering the potential drag on industrial demand from a global growth slowdown, the performance of these more industrially-oriented white metals has been relatively resilient. For silver, UBS expects its positive correlation with gold to persist, and it too could set new record highs this year. The report cautions, however, that if rising oil prices hamper global growth, pressured industrial demand would constrain silver's potential for outperformance relative to gold. For platinum and palladium, UBS believes prices will find support as long as signals of tight market supply persist. Bloomberg data shows both metals are in a state of backwardation across their forward curves, particularly pronounced at the long end, indicating ongoing market concerns about near-term supply availability.