UBS: Gold Prices Still Don't Reflect True Risks, Will Rise Another 20% from Current Levels by 2026

Why does UBS firmly believe that gold prices do not reflect the true risks?

Source: Jin10 Data

Although gold has performed modestly since the outbreak of the Iran war, UBS Group’s commodities analysts say that recalculated risks, interest rate policies, inflation, and strong potential demand will still drive this precious metal to rise to $6,200 per ounce by the end of 2026.

In a report last Friday, analysts pointed out that since the start of the Iran conflict, gold prices have failed to break through $5,200 per ounce, and its so-called safe-haven buying has not materialized. “This is in stark contrast to the 65% increase last year, when rising geopolitical risks, along with declining real interest rates and debt concerns, drove the rally,” they noted. “Recent performance reflects the historical behavior during such events, where investors seek liquidity and consider alternatives like energy assets.”

“For example, after the Russia-Ukraine conflict in 2022, gold prices rose 15%, but then fell 15% to 18% as the Federal Reserve raised interest rates,” they wrote. “The same pattern occurred during the Gulf War and Iraq War—initially, prices rose 17% and 19%, respectively, but eased as tensions subsided.”

However, this recent sideways movement in gold has not shaken the conviction of this Swiss banking giant that gold prices will rise another 20% or more by 2026.

“We maintain our view that gold should rise to $5,900–$6,200 per ounce this year,” they said. “Gold is more of a hedge against the broad impacts of conflicts rather than a safe haven against direct war threats. It mainly guards against currency devaluation, rising deficits, and economic slowdown—risks that can be triggered by geopolitical conflicts.”

“In the short term, rising energy prices and inflation concerns have strengthened the dollar and sparked worries about potential rate hikes—both of which are unfavorable for gold,” the analysts admitted. “But we expect central banks to remain cautious about inflation risks and avoid hasty rate increases.”

Additionally, the longer the US-Iran conflict persists, the greater the risk of negative economic impacts, which could support safe-haven demand for gold.

“Long-term, gold is a prominent hedge against inflation. According to the Global Investment Returns Yearbook, since 1900, the real returns of gold and commodities have been positively correlated with inflation.”

UBS also pointed out that the potential demand for gold remains strong. “Although ETF investors slightly reduced their gold holdings earlier this month, recent positions have shown greater stability, and hedge funds have moderately increased their net gold positions. We believe that with ongoing central bank gold purchases, increased investment activity, and structural growth in jewelry demand driven by rising incomes in Asia, total gold demand could remain robust.”

Structural trends will also continue to support gold’s attractiveness. “We expect that high government debt, central banks, and global investors seeking diversification away from the dollar will underpin gold’s long-term outlook. Therefore, beyond the risks of US-Iran conflict, macroeconomic and political uncertainties remain, and we continue to favor gold as an effective portfolio diversification tool. Investors who favor gold should consider allocating no more than 5% of their diversified portfolios to it.”

On February 23, UBS analysts predicted that gold prices would ultimately reflect the full impact of escalating geopolitical tensions around Iran. Once considering the Federal Reserve’s easing path and rising overall market demand, they forecasted that gold could rise another $1,000 per ounce by June.