Why UBS says you shouldn't ditch gold even after it's tumble into a bear market during the Iran war

Gold is down more than 20% from its January peak since the Iran war began at the end of February, but UBS Global Wealth Management (analyst Wayne Gordon) reiterated a bullish stance and urged investors to keep gold as a defensive hedge, expecting the recent volatility to be short-lived. UBS attributes the pullback to short-term forces—strong US dollar, higher-for-longer rate expectations and waning rate-cut enthusiasm—and expects policy and macro developments to support a resumed climb in gold prices.

Analysis

Central banks remain the structural bid most market participants underprice. Continued official sector purchases create a slowly tightening supply backdrop (official reserves + private dishoarding cycles are lumpy), which compresses free-float liquidity and raises the odds that a policy pivot or inflation surprise produces a sharper than-linear price response over 6–24 months.

In the near-term, gold is competing with cash and real rates for investor attention: elevated real yields and a firm dollar act as a calibrated tax on carrying bullion, which explains the muted initial reaction to geopolitical shocks. That dynamic creates a convexity opportunity — options and short-dated outright exposure are cheap relative to regime-change payoffs, because the market prices the conflict as a low-probability persistent inflation shock rather than a fast-moving policy inflection.

Second-order winners include junior miners and services firms that have cut capex the last 18 months; if bullion reverses, their leverage and constrained future supply should outperform physical over 12–36 months. Conversely, near-term losers are highly levered large-cap producers with heavy forward hedging and high operating leverage, which will lag on a contested rebound and amplify downside if rates spike again.

Key Decisions for Investors

• Buy convexity: Purchase 3–9 month call options on GLD or IAU (size = 1–2% notional portfolio). Rationale: limited premium risk for asymmetric upside if Fed pivots or geopolitical escalation intensifies; expect 2–4x payoff if spot moves 6–10% within 6 months.
• Pair trade short-term: Long IAU (or physical bullion ETF) vs short GDX (miners) for 3–6 months (equal dollar notional). Rationale: capture defensive hedge while avoiding miners' operational and sentiment drag in the initial phase; unwind if gold rallies >8% or GDX underperforms by >10%.
• Volatility play: Buy 30–90 day straddles on GC futures around key geopolitical or macro data releases (size = tactical, <0.5% portfolio). Rationale: implied vol is suppressed versus tail-risk skew; breakeven is the premium paid, with large upside on realized spikes.
• Long-term structural: Accumulate selective producer exposure (GDXJ or select low-hedge juniors) on dips for 12–36 months with protective 6–12 month puts. Rationale: limited new supply + CB buying supports multi-year re-rating; hedge to cap drawdown if real yields re-accelerate.