Gold remains 'attractive' as investment demand surges, says top bank

UBS has reaffirmed its "attractive" rating on gold, projecting a year-end target of $3,500/oz, with potential upside to $3,800, after the metal significantly outperformed all other asset classes in 2025 with a 29% YTD gain. This positive outlook is driven by a 78% surge in H1 investment demand, particularly from ETFs and bar/coin buying, leading UBS to forecast 2025 total demand as the highest since 2011. The bank recommends a mid-single-digit allocation to gold for portfolio diversification, emphasizing its role as a vital hedge.

Analysis

UBS has reaffirmed its bullish outlook on gold, labeling the asset "attractive" with a year-end price target of $3,500 per ounce and a potential upside to $3,800 amid escalating risks. This view is supported by gold's significant outperformance in 2025, having risen 29% year-to-date, surpassing equities, bonds, and bitcoin. The primary driver of this strength is a substantial 78% year-over-year surge in investment demand during the first half, fueled by strong inflows into exchange-traded funds (ETFs) and robust physical bar and coin purchases, particularly from China. Consequently, UBS forecasts full-year ETF demand to exceed 600 tonnes, the highest level since 2020, and projects total gold demand will reach 4,760 tonnes in 2025, a peak not seen since 2011. While central bank purchasing has moderated slightly, it remains well above historical norms, with 43% of surveyed reserve managers indicating plans to increase their gold holdings. This powerful investment and official sector demand is currently offsetting a notable decline in jewellery consumption, where buyers are shifting to lower-weight items or alternative materials.

Key Decisions for Investors

• Given the strong momentum and supportive demand fundamentals from investors and central banks, maintaining or initiating a strategic mid-single-digit allocation to gold for portfolio diversification appears warranted.
• Investors should recognize gold's dual role as both a potential source of return, per UBS's price target, and as a vital hedge against escalating geopolitical or economic risks.
• It is crucial to monitor ETF flow data and central bank demand reports, as these are the primary pillars supporting the current price trend and are compensating for underlying weakness in the jewellery market.