UBS analysts predict that the strong demand for gold among central banks will remain robust due to various factors. Elevated geopolitical risks and concerns about inflation are expected to drive this continued demand. UBS estimates that gold could reach $2,100 per ounce by the end of the year. The conflict in Ukraine has resulted in the freezing of Russian currency reserves, which may have a long-term effect on the conduct of central banks.
In 2022, central banks purchased a record-breaking 1,078 metric tons of gold, surpassing any other year since 1950 when record-keeping began. This amount was more than double the 450 metric tons purchased in 2021. Although central banks are projected to buy 700 metric tons in 2023, which is lower than the previous year, it still exceeds the average of 500 metric tons since 2010. The sustained high demand for gold from central banks is attributed to countries seeking to reduce their reliance on the US dollar, aiming to displace its dominance in global finance, or attempting to circumvent Western currency sanctions.
Given these factors, UBS believes that gold will climb to $2,100 per ounce by year-end and potentially reach $2,200 by March 2024. The weakening of the US dollar, with the Federal Reserve potentially pausing its tightening cycle while other central banks continue to raise rates, is expected to support the rally in gold. Additionally, rising US recession risks, including deteriorating GDP, construction, manufacturing, and consumer sentiment, along with tighter credit conditions, are factors that could contribute to the upward trajectory of gold prices. The behavior of central banks may be influenced in the future due to the prolonged impact of the freezing of Russian currency reserves resulting from the conflict in Ukraine.
