During Wednesday's Asian trading session, spot gold rebounded with mild momentum, trading near $4,375 per ounce, potentially ending a three-session losing streak. Despite escalating geopolitical tensions — with Iran's Revolutionary Guard claiming attacks on US Navy destroyers and vessels in the Strait of Hormuz — gold's safe-haven response has remained relatively restrained, with prices sliding over 4% in the past two weeks, giving back a portion of the 15% surge seen in the first three weeks of August.

Against this backdrop, UBS has conveyed a clear message to clients in its latest research report: the current decline is a short-term headwind driven by shifting Federal Reserve rate expectations, not a breakdown in gold's long-term investment thesis. The bank recommends that underweight investors use the current weakness to build strategic long positions, with its core rationale rooted in the continued record-breaking gold purchases by global central banks.

Gold's Two-Week Decline Exceeds 4%, Fueled by Shifting Rate Expectations

Gold has fallen over 4% in the past two weeks, erasing a significant portion of the 15% gain accumulated during the first three weeks of August. The macro backdrop triggering this pullback is clear: rising US Treasury yields, combined with hawkish comments from Fed Chair Warsh and a string of stronger-than-expected non-farm payroll figures, have significantly shifted market expectations regarding Fed policy. UBS has correspondingly adjusted its own rate forecasts and now anticipates a 50-basis-point rate hike this year. The bank believes the resulting rise in real yields and a firmer US dollar will continue to pressure gold in the near term. This assessment implies that any tactical bounce in gold may depend more on a reversal in rate expectations than on geopolitical catalysts alone.

Rate Headwinds Do Not Undermine Medium-Term Allocational Value; UBS Draws Parallel to Equity Stance

UBS's analytical framework clearly delineates between short-term price fluctuations and long-term allocational value. The bank points out that just as its medium-term bullish stance on global equities remains unchanged despite short-term rate risks — supported by AI-related spending, economic resilience, and broad earnings growth — the same logic applies to gold: recent rate pressures do not diminish the metal's strategic role in a diversified portfolio. This analogy is crucial: it positions gold as a structural allocation tool rather than a tactical trading vehicle hinged on the next Fed meeting. For those wondering about further downside, this framework offers clear guidance — should UBS's assessment hold, declines driven by higher yields or a stronger dollar would be viewed by strategic allocators as entry opportunities, not as signals to reduce positions.

Central Bank Purchasing: The Most Solid Long-Term Pillar

Central bank demand is the cornerstone of UBS's long-term bullish case for gold, and the data is compelling: the People's Bank of China added 650,000 ounces of gold in August, 10,000 ounces more than the previous month, marking the largest monthly increase in nearly 11 months and the 22nd consecutive month of net buying. On a global scale, a World Gold Council survey shows that nearly 90% of central banks expect official reserves to rise over the next 12 months, with 45% planning to increase their own holdings. UBS believes annual central bank purchases of 750 to 1,000 tonnes have become the most robust structural support for the gold market.

Fiscal Sustainability Concerns Form a Second Pillar

UBS also notes that despite current high US interest rates and economic resilience underpinning a stronger dollar, persistent market worries over fiscal sustainability and elevated government debt could limit the dollar's upside over longer cycles. This assessment reinforces UBS's expectation of a gradual diversification away from the dollar in global reserve assets, with gold benefiting as an alternative store of value. The prospect of medium-to-long-term dollar weakness, in UBS's view, will further underpin gold demand.

Gold's Traditional Roles: Inflation Hedge and Geopolitical Buffer

The report further highlights that gold's traditional role as an inflation hedge and a buffer against geopolitical uncertainty remains a key reason institutional investors include it in their portfolios. UBS cites data from the Global Investment Returns Yearbook showing that since 1900, real returns on gold and commodities have been positively correlated with inflation, and gold's performance during past crises provides historical validation for this allocation logic.

Conclusion

UBS's core view on gold can be summarized as: short-term follows rates, long-term follows central banks. The current pullback is driven by Fed policy expectations and does not represent a deterioration of gold's structural outlook. UBS continues to forecast annual central bank gold purchases in the 750 to 1,000 tonne range, citing the PBoC's 22 consecutive months of accumulation and strong intentions indicated in the global central bank survey as key evidence. For underweight investors, UBS recommends viewing the current weakness as a window to establish strategic exposure. Gold's long-term narrative — de-dollarization, fiscal concerns, inflation hedging — remains intact.

As of 12:04 Beijing time, spot gold was trading at $4,374.76 per ounce.