UBS CIO View on Gold — Short-Term Caution, Long-Term Bullish

UBS’s latest gold view is constructive over the medium term but cautious near term. The World Gold Council’s second-quarter data confirm a mixed supply-demand picture: investment and jewelry demand softened, mine supply rose modestly, but central-bank and OTC demand remained strong. That combination is consistent with the price weakness seen in recent months and explains why gold did not react much to the report.

The core message is:

Gold needs sustained investment demand and robust central-bank purchases to stay above US$4,000/oz. Near-term risks remain skewed lower if markets keep pricing Fed hikes, but weakness toward US$3,850/oz should be viewed as a long-term accumulation opportunity.

1. UBS Gold Forecasts

UBS forecasts gold rising steadily into mid-2027:

This is a structurally bullish forecast path, but UBS does not expect a straight-line move. They see downside risk toward US$3,850/oz in the near term if Fed hike pricing persists.

2. World Gold Council 2Q Data: Stable Total Demand, Weaker Key Segments

The WGC report showed stable total demand, but the composition was less favorable in some key areas.

Softer Areas

• Bar-and-coin demand fell to 307 metric tons.

• Investment demand excluding OTC fell to 262 metric tons.

• Jewelry demand softened.

• ETF holdings saw outflows last quarter.

Bar-and-coin demand was notably lower than in 4Q25 and 1Q26, when demand exceeded 400 metric tons. Those earlier quarters benefited from Fed rate cuts and USD debasement concerns. As those tailwinds faded, retail / investment demand cooled.

Investment demand excluding OTC was also much weaker than the prior year:

That is a meaningful deterioration and helps explain why gold has struggled tactically.

3. Central Banks: 1Q Revision Was a Shock, but 2Q Was Strong

The most notable data point was the World Gold Council’s large downward revision to first-quarter central bank demand.

The revision from 244t to 57t is unusually large and weakens the near-term narrative around steady official-sector accumulation. However, the second-quarter number of 289t was very strong.

Averaging the first half:

57t+289t=346t57t+289t=346t

That puts first-half central bank demand at roughly 345–346t, implying an annualized run rate near:

346t×2=692t346t×2=692t

UBS rounds this to around 700t annualized.

That is below UBS’s full-year 2026 forecast of 750–1,000t, but not far enough below for them to change estimates, especially given the strong improvement in 2Q.

4. Supply: Mine Output Higher, Scrap Surprisingly Lower

Mine supply was revised higher for 1Q and increased in 2Q.

So mine supply rose by:

966t−948t=18t966t−948t=18t

That is a modest increase, but in a market where investment demand has softened, incremental supply still matters.

The surprise was recycled gold supply. Historically, high gold prices tend to encourage scrap selling. But recycled supply moderated:

This is somewhat unusual because prices remain high. UBS suggests the historical relationship between high prices and scrap supply may be partly linked to recessionary episodes, when households monetize gold during stress. Last year’s rally was driven more by other factors, so the scrap response has been less aggressive.

5. Why Gold Has Been Under Pressure

UBS argues the latest supply-demand data are consistent with recent pressure on gold prices.

The bearish near-term ingredients:

• Weaker bar-and-coin demand

• ETF outflows

• Softer investment demand excluding OTC

• Softer jewelry demand

• Slightly higher mine supply

• Fed hike pricing

• Higher real-yield risk

• Stronger opportunity-cost concerns

Gold has stabilized above US$4,000/oz, but UBS is clear that staying above that level requires both:

1. Sustained investment demand

2. Robust central-bank buying

Without those, gold can pull back toward US$3,850/oz.

6. Fed Policy Is the Key Investment-Demand Driver

The focus remains on US monetary policy and the direction of real yields. UBS’s view is that gold is vulnerable in the near term because the market is still pricing Fed hikes this year.

The gold transmission channel:

Fed Hike Pricing→Higher Real Yields→Higher Opportunity Cost→Lower Investment Demand→Gold PressureFed Hike Pricing→Higher Real Yields→Higher Opportunity Cost→Lower Investment Demand→Gold Pressure

Conversely, if the Fed stays on hold rather than hiking, or cuts rates early next year as UBS expects, investment demand should recover.

The bullish transmission channel:

Fed Hold/Cuts→Lower Real Yields→Weaker USD→ETF/Investment Demand Recovery→Higher GoldFed Hold/Cuts→Lower Real Yields→Weaker USD→ETF/Investment Demand Recovery→Higher Gold

This is why UBS is cautious short term but constructive over 12 months.

7. Central-Bank Demand Needs to Stay Strong

UBS highlights that if second-quarter central bank demand can stay close to 300t per quarter, conditions become much more supportive.

That would imply an annualized pace of roughly:

300t×4=1,200t300t×4=1,200t

That would be meaningfully above UBS’s 750–1,000t estimate and would likely reinforce the structural bull case.

However, for UBS’s optimistic path to materialize, several things need to align:

• Fed holds now, then cuts over the next 12 months.

• Real yields decline.

• USD weakens.

• Investment demand recovers.

• Central-bank purchases remain robust.

• Gold remains attractive as a safe-haven / diversification asset.

8. Short-Term Downside Risk: US$3,850/oz

UBS sees room for gold to pull back toward US$3,850/oz if markets continue pricing Fed hikes. This is not framed as a bearish regime shift, but as a tactical drawdown risk.

The key level framework:

UBS’s tactical message is not to chase rallies aggressively here, but also not to abandon gold on weakness.

9. Strategy Implications

For Long-Term Investors

UBS views weakness toward US$3,850/oz as an opportunity to build exposure. The long-term case remains intact because:

• Fed cuts are expected early next year.

• Real yields should eventually decline.

• USD diversification flows should support gold.

• Central banks remain buyers.

• Gold remains a safe-haven and portfolio diversifier.

For Tactical Investors

UBS remains cautious in the short term and prefers trading around news events. This aligns with the broader market backdrop: Fed uncertainty, oil volatility, and rates volatility can produce tactical swings.

For Options Investors

UBS says the outlook leaves room for volatility-selling strategies by selling downside price risk.

That likely means strategies such as:

• Cash-secured put selling

• Put spreads

• Structured downside premium harvesting

• Buying gold on assigned weakness

The key is that investors should only sell downside volatility at levels where they are comfortable owning gold, such as near US$3,850/oz.

10. Comparison With Prior Bull Case

UBS’s view is slightly more cautious tactically than the broader structural bull thesis, but not inconsistent with it.

The main UBS nuance is that gold above US$4,000/oz cannot rely on central banks alone if investment demand continues to soften. Investment demand needs to stabilize or recover.

UBS remains structurally bullish on gold but tactically cautious. The WGC 2Q report showed softer bar-and-coin, ETF, jewelry, and investment demand, alongside modestly higher mine supply. That validates recent price weakness. The big offset was strong central-bank buying of 289t in 2Q, although the sharp downward revision to 1Q demand from 244t to 57t means first-half official demand is running closer to 700t annualized, below UBS’s 750–1,000t full-year estimate.

The near-term risk is that Fed hike pricing and higher real yields push gold toward US$3,850/oz. But UBS does not think investors should become too negative. If the Fed stays on hold rather than hiking, and cuts early next year as UBS expects, investment demand should recover, the USD should weaken, and gold can resume its move higher.

UBS forecasts gold at US$4,400/oz by Sep 2026, US$4,600/oz by Dec 2026, US$5,000/oz by Mar 2027, and US$5,200/oz by Jun 2027. For long-term investors, weakness toward US$3,850/oz is an accumulation opportunity, while tactical investors may consider selling downside volatility at levels where they are comfortable owning gold.