Gold prices have fallen nearly 4% in a week despite the conflict in Iran and Israel escalating. The XAU/USD index has cooled down in March, while leading cryptocurrencies such as Bitcoin have spiked 10%. The safe haven nature of the precious metal is jittery as traders are now taking calculated steps.
However, the price grind for gold is only temporary, wrote UBS in a note to clients. The investment bank noted that prices are materializing and could see another sharp spike, similar to the rise of energy stocks. For the uninitiated, energy stocks have been on the rise after the war and are now among the top-performing equities.
The overall US energy sector has surged by nearly 22% year-to-date, making it a prime investment due to its pivot and support towards the AI industry. Gold prices will also replicate the energy sector, delivering double-digit gains again, according to UBS. “In the short term, higher energy prices and inflation worries have led to a stronger US dollar and concerns over potential rate hikes—both are negative for gold prices,” wrote the bank.
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UBS: 20% Rise Will Push Gold Prices Towards $6,200
UBS wrote that gold prices first spiked 15% after the Russia-Ukraine war broke out. The glittery metal rarely headed south since then, as it hit new highs every month. “For instance, gold jumped 15% after the start of the Russia-Ukraine conflict in 2022. The same happened during the Gulf War and Iraq War—prices rose 17% and 19%, respectively, at the start but decreased as tensions eased.”
The investment bank predicts that gold prices could reach a high of $6,200 next. “We maintain the view that gold prices should rise toward USD 5,900-6,200/oz this year,” they said. “Gold is more of a hedge against the wider impact of conflicts, rather than direct wartime threats. Gold primarily insulates against monetary risks like currency devaluation, rising deficits, and economic slowdowns, which can result from geopolitical conflicts.”