💰 UBS predicts that gold prices could reach $2,700/ounce by June next year due to a weaker US dollar and interest rate cuts from the US Federal Reserve (Fed).
📉 The DXY index, which measures the performance of the US dollar against six other major currencies, has lost 5% of its value since June, while gold prices have hit a new record high of nearly $2,600 an ounce.
📈 Gold is benefiting from the possibility of lower interest rates, which reduces the opportunity cost of holding non-yielding assets. Gold also tends to rise amid higher-than-expected producer price index (PPI) and core consumer inflation.
🔍 UBS said current inflation data allows the Fed to start cutting rates this week while the labor market remains soft. However, upcoming retail sales and industrial production data could influence the Fed's decision.
📊 UBS's forecast is not a recession, but a soft landing with the possibility of a total of 200 basis points of interest rate cuts this year and next. If that happens, gold prices could continue to rise as the market transitions to a lower interest rate environment.
📉 For the US dollar, the federal budget deficit is a long-term headwind. In contrast, gold is growing and attracting more and more, with total holdings in exchange-traded funds (ETFs) recovering to nearly 3,182 tonnes this year.