Gold prices reach $2,200 and outperformance awaits silver, says UBS

Gold and silver bars of various sizes sit in a safe on a counter at precious metals dealer Pro Aurum in Munich.

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Gold and silver are expected to rise further in 2024 amid expectations that the US Federal Reserve will start cutting interest rates, according to UBS forecasts.

“We expect gold to be pushed higher by Fed easing. This also comes with a weak dollar,” said Johnny Teves, precious metals strategist at the investment bank, who expects the metal to reach $2,200 an ounce by the end of the year.

Gold prices tend to have an inverse relationship with interest rates. As interest rates fall, gold becomes more attractive compared to alternative investments such as bonds, which would generate weaker returns in a low interest rate environment.

In turn, lower interest rates weaken the dollar, making gold cheaper for international buyers, which leads to higher demand.

While there is still a lot of uncertainty about the timing and extent of interest rate cuts, UBS maintained its expectations that the Fed will ease policy. Last week, the Fed announced its decision to leave interest rates unchanged in January, in addition to reducing hopes for a rate cut in March.

In a scenario where the Fed eases monetary policy, we think silver could do really well. It tends to outperform the gold movement.

Johnny Tevez

UBS Strategic

Bullion's appeal as a safe-haven asset has increased since Israel's war with Hamas began on October 7, contributing to gold prices rising to an all-time high of $2,100 an ounce last month.

“We think investors will start building allocations to gold in an environment with a lot of macro uncertainty [and] “Geopolitical risks,” Tevez said.

Horizons for “Gold's poor cousin“We are also optimistic, as silver is on its way to ‘really shine’.”

Silver is not as popular as a geopolitical and safe haven compared to gold, which partly explains why gold has performed poorly in the past few years, the strategist said. But things may turn in his favor when the Federal Reserve eases its policies.

“In a scenario where the Fed is easing monetary policy, we think silver can do really well. It tends to outperform gold's movement,” Teves said. She added: “Silver has underperformed gold. So, there is a lot to be done, and I think this move could be very exciting.”

Silver performance It is closely linked to the health of the overall economy Because of its wide industrial applications. The precious metal is commonly incorporated into automobiles, solar panels, jewelry, and electronics.

Gold was trading at $2,052 per ounce, while silver was trading at $22.69 per ounce.