Gold prospects stay intact

KUALA LUMPUR: Gold, which saw a decline in price amid a breather in the US-China trade tensions, is expected to regain traction – potentially re-testing and surpassing its all-time high – driven by expectations of US interest rate cuts, strong physical demand and a structurally weaker US dollar.

The precious metal is currently trading around US$3,150 per ounce, below its record high of US$3,500 a month ago.

SPI Asset Management managing partner Stephen Innes is bullish on the gold, projecting it to rise as high as US$3,750 in the second half of this year, and even hit US$4,000 by 2026 if global trade fragmentation persists and trust in the US dollar and Treasuries continues to erode.

Currently, Innes said, yields are flashing higher as the trade war risk premium erodes, which has hurt gold.

“In that kind of environment, I see gold setting a near-term floor around US$3,100 as markets digest shifting rate expectations and the fading of the US-China trade war premium,” he said.

“But that pullback sets the stage for the next leg higher.

“I think gold reclaims momentum in the second half of this year, retesting US$3,500 and potentially overshooting toward US$3,750 as policy credibility continues to erode – both fiscal and monetary.”

“The United States is sleepwalking into a structurally weaker dollar regime, and once the market fully prices that in, gold becomes the default anti-fiat asset again, not just a hedge.”

Innes believes longer-term holders will accumulate gold on dips, helping to support the market even during short-term pullbacks.

Similarly, UBS Investment Bank shares an optimistic view, with its precious metals strategist Joni Teves forecasting gold to hit US$3,500 by year-end.

“Our expectation that the US Federal Reserve (Fed) continues to ease policy rates given the downside risks to economic growth, is key to our bullish gold outlook,” Teves said.

Teves emphasised that the number of rate cuts is less important than the overall easing bias, which creates a supportive environment for gold prices.

“It hasn’t been so much about whether it’s one cut, two cuts, three cuts, four cuts that are ahead, but more the fact that the Fed is going to ease policy – and that is supportive for gold prices.”

As for short-term movements, Teves believes the market has entered a phase of consolidation following recent tariff headlines and signs of de-escalation between the United States and China trade war.

“We are heading into the summer months in the Northern Hemisphere, which typically is a quieter period for markets. So I think there is room for the market to consolidate in the very near term.”

“We think that this actually provides an opportunity for investors that have been sitting on the sidelines waiting for better levels to get in.”

Initial support is likely around current levels, she said, though she wouldn’t rule out a dip towards US$3,100 – a level that could attract strong investor and retail buying interest.

Looking further ahead, Teves expects the yellow metal to peak at about US$3,600 sometime in the second or third quarter of 2026, before easing to end the year at around US$3,500.

“That implies that the market will see new highs compared to what we’ve reached so far this year.”

Teves said the long-term outlook is reinforced by structural themes such as asset diversification and de-dollarisation.

“One of the key factors why we think gold continues to rally is that investors should continue to diversify their assets.

“And gold is an attractive asset for them to diversify into,” she said.

Despite the gold price rally in recent months, Teves noted that investor positioning remains relatively lean, suggesting more upside.

“Metrics that we like to look at, which is the value of gold holdings in exchange-traded funds (ETFs) and positions on Commodity Exchange relative to total assets under management, remains quite low.

“To us, this means that there is room for investors to continue building an allocation in gold here,” she said.

Teves added that a broader and more diversified investor base has also helped support gold prices in recent years.

“The broader, more long-term reason why this is the case is that gold’s investor base has expanded significantly since the global financial crisis.

“A wider range of investors are now involved in the gold market, and they are generally holding much smaller positions than they did in the past.”

One source of upside risk to gold demand, she said, is China.

“The announcement earlier this year on insurance companies being allowed to invest up to 1% of their assets in gold – we think is a positive factor or a positive development for the long term in gold,” she said.

“This has a positive implication on demand out of China in the long run, given that this is basically a new segment in the market that previously was not participating, now being allowed to participate.”

While volumes from this segment are expected to be modest in the near term, Teves noted that the move has fuelled positive sentiment onshore, as evidenced by the sharp rise in Shanghai Gold Exchange trading volumes and large inflows into Chinese gold ETFs.

Meanwhile, Teves said first-quarter data from the World Gold Council pointed to resilient physical investment demand across most regions, which has more than offset softness in jewellery demand due to high prices.

“Jewellery demand has really stepped back at these higher price levels. But physical buyers, particularly on the consumption side, I think will have an opportunity to step in with this pullback,” she added.

Still, Teves warned that the biggest downside risk to gold would be a significant reduction in tariff uncertainty, paired with stronger-than-expected growth that pushes the Fed into a more hawkish stance.

“So, a scenario where the market starts to anticipate higher rates — potentially as the Fed would want to curtail inflation — we think then that creates the biggest downside risk for gold here.”

“But that is not our base case, and we continue to expect that gold prices will continue to rally into next year.”

Separately, Innes stressed that the weakening trust in traditional economic anchors is reshaping how gold is valued.

“If we continue on the trade fragmentation road, we could easily see US$4,000 by 2026.

“That’s not a moonshot call — it’s just a rational repricing of a world where trust in the old anchors, like the US dollar and US Treasury bonds, keeps slipping.”