Important points
- Gold prices have bounced back in the last week after experiencing a decline following a series of all-time highs.
- Strong investment demand from ETFs is significantly driving the interest in precious metals.
- According to UBS, prices may increase by another 10% due to additional financial market and policy risks.
Gold prices surged recently, partly in response to concerns over a potential federal government shutdown. However, the upward trend doesn’t seem to stop just because that issue is resolved.
Analysts suggest that lingering economic uncertainty could keep the demand for gold strong, pushing its value further up.
This year, gold reached unprecedented highs, with spot prices hitting $4,360 per ounce on October 20, but then dropped to $3,970 by early last week. Recently, though, the trend has reversed, as prices climbed back to around $4,260 on Thursday, though there was some pullback later in the day.
The revived interest in gold shows a market context that remains largely unchanged, even after the end of the shutdown, which continues to drive investment from gold-focused North American ETFs.
UBS also indicated in a report that if political or market risks escalate, we might see gold prices soar to $4,700.
Why this matters to investors
In times of economic instability and market volatility, investors often flock to gold. There’s quite a bit of uncertainty surrounding the U.S. economy, which makes people question the longevity of the stock market’s gains. Some well-known investors have recently advised bolstering investment portfolios with more gold than usual.
Large trading volume
U.S. gold trading volume reached an impressive $208 billion daily this October. In September, prices increased by 59% month-over-month, and in October, they rose another 51%. The surge in ETF demand was a significant factor, possibly balancing out the decline in global gold jewelry, bar, and coin demand. In the U.S., gold ETFs increased their physical gold holdings by 160% in the third quarter compared to last year.
UBS believes that the demand will likely persist due to ongoing geopolitical uncertainties.
For example, the bill that ended the government shutdown only provides funding until January 30. If Congress does not pass more funding, another partial shutdown could occur then.
Other demand factors
Additionally, last week, a skeptical Supreme Court questioned the legality of President Trump’s tariff policies under the International Emergency Economic Powers Act (IEEPA). A ruling could come soon, but this uncertainty might continue to bolster the demand for gold.
UBS also forecasts that global gold demand is on track to be the highest this year since 2011, driven by potential interest rate cuts from the Federal Reserve, a weakening U.S. dollar, and rising global government debt.
Meanwhile, the World Gold Council has noted that demand for gold bars in the U.S. is currently very robust, and retail interest has grown recently.
According to their recent findings, “Costco’s gold business is thriving both online and in-store,” fueled by consumer confidence and stable pricing as markets continue to rise.
