UBS forecasts that gold and silver are poised for further gains in 2024, driven by expectations of interest rate cuts by the U.S. Federal Reserve. According to Joni Teves, UBS's precious metals strategist, the anticipation of Fed easing, coupled with a weaker dollar, is expected to propel gold prices to $2,200 per ounce by the end of the year.
The inverse relationship between gold prices and interest rates plays a role in this forecast. With decreasing interest rates, gold becomes more attractive compared to alternative investments like bonds, which yield weaker returns in a low-interest environment. Additionally, lower interest rates tend to weaken the dollar, making gold more affordable for international buyers and boosting demand.
While the timing and extent of rate cuts remain uncertain, UBS maintains its expectation that the Federal Reserve will ease policy. Despite the Fed's decision to leave rates unchanged in January and dismiss hopes of a March rate cut, UBS believes that a scenario of Fed easing could bode well for silver, which has the potential to outperform gold.
The appeal of gold as a safe haven asset has increased amid geopolitical tensions, such as Israel's conflict with Hamas. Teves anticipates investors will allocate more to gold in times of macro uncertainty and geopolitical risks.
Silver, often considered gold's "poorer cousin," is also expected to shine. Despite underperforming gold in recent years, the potential for silver to catch up and outperform becomes more significant in a scenario where the Fed eases. Teves notes that silver's performance is closely tied to the overall economy due to its widespread industrial applications in areas like automobile manufacturing, solar panels, jewelry, and electronics.
As of the latest data, gold is trading at $2,052 per ounce, while silver is priced at $22.69 per ounce
