UBS Predicts Gold to Reach $2,200 and Foresees 'Dramatic' Outperformance for Silver in 2024

UBS Forecasts Increased Gold and Silver Prices for 2024

UBS is forecasting a further increase in the prices of gold and silver for 2024, driven by expectations of the U.S. Federal Reserve cutting interest rates. According to the investment bank's precious metals strategist, Joni Teves, the anticipation of a Fed easing, along with a weaker dollar, is expected to push gold to reach $2,200 per ounce by the end of the year.

Relationship Between Gold Prices and Interest Rates

The inverse relationship between gold prices and interest rates indicates that as interest rates decrease, gold becomes a more attractive investment relative to other options such as bonds, particularly in a low-interest rate environment. Furthermore, lower rates lead to a weakened dollar, making gold more affordable for international buyers and subsequently increasing demand.

Expected Policy Easing by the Federal Reserve

Although the precise timing and extent of the rate cuts are uncertain, UBS is maintaining its expectations for a policy easing by the Federal Reserve. Despite the Fed's recent decision to leave rates unchanged in January and dismiss hopes of a rate cut in March, the appeal of gold as a safe haven asset has escalated amid geopolitical tensions, such as the conflict between Israel and Hamas, which contributed to gold prices reaching an all-time high of $2,100 an ounce last month.

Positive Outlook for Gold and Silver

According to Teves, "We do think investors will start to build allocations to gold in an environment where there is a lot of macro uncertainty [and] geopolitical risks." In addition to the positive outlook for gold, UBS also anticipates a favorable performance for silver, with the metal poised to "really, really shine." Although silver is not as commonly regarded as a geopolitical and safety haven in comparison to gold, its underperformance in recent years is expected to reverse, particularly when the Fed eases. Teves stated, "In a scenario where the Fed is easing, we think silver can do really well. It tends to outperform a move in gold." She further emphasized, "Silver has been underperforming gold quite a lot. So there is a lot of catching up to do and I think the move could be quite dramatic."

Silver's Performance and Industrial Applications

Silver's performance is closely linked to the overall health of the economy due to its broad industrial applications, including its use in automobile manufacturing, production of solar panels, jewelry, and electronics. Currently, gold is trading at $2,052 per ounce, while silver is priced at $22.69 per ounce.