Gold rebound hopes rise as Fed tightening fears ease, says UBS
UBS says gold can reclaim lost ground as fears of Federal Reserve tightening ease later this year, despite recent 16% decline since late February.
Gold has shed more than 16% of its value since the U.S. and Israel launched strikes on Iran at the end of February, but UBS believes the precious metal can reclaim lost ground as fears of Federal Reserve tightening gradually ease later this year.
In a note to clients, UBS stated that gold has come under pressure because "worries that high energy prices will lead to tighter monetary policy from the Federal Reserve and other central banks, raising the opportunity cost of holding the precious metal." Two-year U.S. Treasury yields have risen close to 60 basis points since the conflict began, and the correlation between those yields and gold now stands near -0.6, a sharp reversal from the positive correlation seen earlier this year. This negative correlation reflects the heightened sensitivity of gold to rate expectations, as higher yields increase the opportunity cost of holding non-yielding assets like gold. For gold traders, the key takeaway is that any shift in Fed rhetoric or economic data that reduces tightening fears could trigger a significant rebound. NowPrice's real-time gold quotes show the metal currently trading near recent lows, offering a potential entry point for those betting on a recovery.
Looking ahead, gold's path will depend heavily on inflation data and Fed communications. If energy prices moderate and inflation shows signs of peaking, the Fed may pause its tightening cycle, which would be bullish for gold. Conversely, persistent inflation could keep yields elevated and gold under pressure. Traders should watch for the next U.S. CPI release and any Fed speeches for clues on the monetary policy trajectory.