According to UBS, gold and silver are set for significant gains in 2024, driven by the expectation of interest rate cuts by the U.S. Federal Reserve. UBS forecasts that gold prices will be driven higher by anticipated Fed easing and a weakening dollar, with prices expected to reach $2,200 per ounce by the end of the year.
Relationship with Interest Rates
Gold prices typically exhibit an inverse relationship with interest rates. As interest rates decline, gold becomes more attractive relative to other investments like bonds, which offer lower returns in a low-interest rate environment. Lower interest rates also tend to weaken the dollar, making gold more affordable for international buyers and boosting demand.
Uncertainty Surrounding Rate Cuts
While there is uncertainty about the timing and extent of rate cuts, UBS maintains its expectation for Fed policy easing. The recent decision by the Fed to leave rates unchanged in January, coupled with the dismissal of hopes for a rate cut in March, underscores this uncertainty.
Gold’s Appeal as a Safe Haven Asset
The appeal of gold as a safe haven asset has increased amid geopolitical tensions, such as the conflict between Israel and Hamas, contributing to gold prices hitting an all-time high of $2,100 per ounce.
Silver is Set to Shine as Well
UBS also predicts a bright future for silver, expecting it to outperform gold significantly.
While silver has historically underperformed gold due to its lesser role as a geopolitical and safety haven asset, UBS believes this could change with Fed easing.
Potential for Dramatic Growth
In a scenario where the Fed eases, silver is expected to perform exceptionally well, potentially outshining gold. The significant underperformance of silver relative to gold in recent years suggests there is substantial room for growth.
Silver’s Industrial Applications
Silver’s performance is closely linked to the health of the overall economy due to its wide range of industrial applications in sectors such as automotive, solar energy, jewelry, and electronics.