High Oil Prices Shatter Interest Rate Cut Expectations! UBS Warns: Gold Bull Market May Be Coming to an End

A strategist at UBS stated that a prolonged Iran conflict and sustained high oil prices could mean the gold rally is nearing its end.

Joni Teves, precious metals strategist at the Swiss investment bank, told MarketWatch last Friday that investors may currently be witnessing the final phase of the gold bull market.

“We believe the gold price cycle generally aligns with the Federal Reserve policy cycle, so we expect the rally to gradually fade by year-end and gold prices to consolidate at lower levels in the coming years,” she said.

Gold prices typically rise during periods of conflict as traders flock to safe-haven assets amid market volatility, but gold generally has an inverse relationship with Federal Reserve interest rates—gold tends to rise when the central bank cuts rates.

CME Group’s FedWatch Tool shows that on the day before the US and Israel attacked Iran, the market priced only a 4% chance that the Federal Reserve would keep its rates unchanged before the December policy meeting. Since the Fed began cutting rates in September 2024, it has said that, as inflation gradually returns to the 2% target, further rate cuts could follow.

However, after the outbreak of war in Iran, market expectations for monetary easing have cooled dramatically, and rates are now priced to remain unchanged this year—meaning there is less potential for further gold price gains.

Teves said that this is exactly why UBS currently expects “the gold price rally to end by year-end and prices to consolidate at lower levels in the coming years.”

On Monday, gold prices hovered around $4,500 per ounce, well below the nearly $5,600 peak reached at the end of January. Over the past month, gold prices have dropped about 15%, falling nearly 20% from the historical highs just over two months ago.

UBS’s year-end target price for gold is $5,600 per ounce, mainly based on the assumption that investors will continue to diversify portfolios by buying gold. Teves said that this trend could continue to drive gold prices higher.

“We think overall market allocation to gold remains relatively low,” she added. “The current uncertainties the market faces further reinforce the desire among investors to build more diversified portfolios, and gold is seen as a core asset in such portfolios.”

Teves stated that the UBS team’s base case is that, after a period of consolidation, continued inflows from allocation funds will push gold to new highs later this year. “But it should be noted that prolonged Middle East conflict could bring significant changes to the macroeconomic outlook and policy expectations, which would in turn alter the medium- to long-term trajectory for gold prices.”

The recent correction in gold prices may also present buying opportunities for investors. “We believe gold remaining at current levels and any further pullbacks will increasingly look attractive to many investors,” Teves said. However, she also noted that many market participants are still on the sidelines, waiting for greater clarity on the war situation.