Gold tumbles to two-month low as inflation hedge status fades

Gold prices fell to a two-month low on Thursday, as renewed uncertainty over the trajectory of the U.S.-Iran war gave the dollar a boost and drove oil prices higher.

At 9:12 a.m. ET, spot gold was trading around 0.7% lower at $4,425.73 an ounce. Front-month U.S. gold futures were down 0.5% to settle at $4,460.30.

The move put spot prices at their lowest since March 26.

The gold sell-off came as the U.S. dollar edged higher, making gold priced in the greenback more expensive for international holders.

Gold price forecasts

But UBS strategists doubled down on their bullish stance on gold in a Thursday note. They said that while gold has come under pressure during the Iran war due to worries that high energy prices will lead to tighter monetary policy from the Federal Reserve and other central banks, the precious yellow metal should regain momentum as rate hike expectations ease.

UBS recently scaled back its year-end price target for gold to $5,500 an ounce. It had previously forecasted $5,900 per ounce by the end of the year.

“We remain positive on the outlook for gold and continue to view the precious metal as a source of diversification within portfolios,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said. “Although near-term performance may remain sensitive to U.S.-Iran headlines, energy prices, U.S. yields, and the dollar, the medium-term case remains supported by central bank demand, reserve diversification, elevated global debt burdens, and the prospect of easier Fed policy later in the year.”

Bank of America currently has a year-end gold price target of $5,093 an ounce — an increase of about 16% from Thursday’s spot price. The lender then sees the metal pulling back to $4,925 per ounce by the end of 2027.

“Gold has been overbought, but underinvested,” BofA analysts said in a note to clients on Tuesday. “Prices have corrected after relentless ETF purchases subsided in autumn. The wider macro environment, including the U.S.′ unorthodox economic policies are supportive, so we see upside risk to our forecasts.”

A sustained dollar rally, higher real rates and increased scrap supply could pose downside risks to their forecasts, BofA’s team said.

In a note on Tuesday, strategists at Kepler Cheuvreux said they were increasing their exposure to gold, noting that it “remains highly correlated to oil prices.”