Gold Prices Surge to 7-Week High; UBS Predicts Over $5,000 Next Year

International gold prices have climbed to their highest level in seven weeks, driven by a confluence of macroeconomic factors, shifting capital flows, and a growing demand for portfolio diversification. Following a significant 4.2% increase on Wednesday, gold prices continued their upward trend, reaching an intraday high of $4,304 per ounce in early Asian trading on Thursday.

The recent surge in gold prices is partly attributed to increased market expectations regarding the potential reopening of the Strait of Hormuz. U.S. President Trump's announcement of renewed negotiations with Iran, coupled with a degree of current openness in the strait, has bolstered investor confidence, despite a formal agreement yet to be reached.

Additional support for gold prices comes from robust buying interest in the Chinese market, net inflows into Gold Exchange Traded Funds (ETFs), a generally accommodative interest rate environment, and a global focus on diversifying reserves. Furthermore, joint measures by the U.S. and Japanese governments to stabilize the Japanese yen have indirectly supported gold by mitigating pressure on U.S. Treasury bonds.

Analysts at UBS Wealth Management's Chief Investment Office (CIO) view the recent price action as validation of their market outlook. They maintain an optimistic forecast for gold, anticipating further upside potential. UBS reiterates its projection that gold prices will surpass $5,000 per ounce in the first half of next year, setting a target of $5,200 by the end of June 2027. This outlook is underpinned by expectations of declining U.S. Treasury yields, a weakening U.S. dollar, and continued gold purchases by central banks worldwide.

For asset allocation, UBS advises investors to strategically include a mid-single-digit percentage (around 5%) of gold in highly diversified portfolios. The bank also suggests considering exposure to broad commodities to further enhance a portfolio's resilience against risk and improve diversification.