UBS On-Air: Paul Donovan Daily Audio 'A gilded age'
At a Glance
The desk views the surge in gold prices as a clear indication of central bank strategies transitioning towards gold accumulation, offering a hedge against U.S. dollar volatility. Recently hitting a record $3,500 per ounce, as stated by UBS Chief Economist Paul Donovan, this rally is partially fueled by expectations of a Federal Reserve rate cut, which diminishes the opportunity cost of holding gold. This sentiment suggests that institutional players might consider revising their currency positions, particularly in pairs sensitive to gold's valuation like the EUR/USD and GBP/USD. With no immediate calendar events highlighted, focus shifts to U.S. policy statements which could further influence market sentiment surrounding the dollar .
Key Takeaways
- 01Gold prices reaching $3,500 signal a shift in central bank asset management strategies.
- 02Expectations of rate cuts by the Federal Reserve lower opportunity costs for holding gold.
- 03UBS maintains a bullish target for EUR/USD at 1.2000 by March 2026, well above the cross-firm average.
- 04Policy statements and market dynamics may influence dollar strength and related currency pairs.
Full Analysis
What the desk is arguing
The desk argues that the recent surge in gold prices signals a larger shift in monetary policy and central bank asset allocation strategies. Per the full note from UBS, this shift underscores a preference for assets that provide independence from potential U.S. Treasury manipulation.
Supporting this view, Donovan cites the substantial rise in gold prices and the influence of the Federal Reserve's impending policy decisions, particularly the potential for interest rate cuts. With 10-year U.S. Treasury yields experiencing slight upticks, this also reflects changing market dynamics and the interplay of gold with U.S. dollar assets.
Where it sits in our coverage
For the EUR/USD, the median consensus target sits at 1.1700 with a range of 1.1200–1.2000; UBS specifically targets 1.2000 for March 2026. This suggests that as gold continues to rally, the euro might see supportive pressure against the dollar.
Currently, ubs projects a high target compared to other firms like deutschebank at 1.1800 and citi at 1.1300, placing UBS's view at the upper bound of the spectrum.
How other firms see it
Aligned firms like hsbc and deutschebank share a bullish outlook on the EUR/USD, with both targeting 1.1800 or higher by the end of 2026. Conversely, citi appears more conservative, projecting lower EUR/USD levels.
This analysis of the gold market underpins thoughts on the GBP/USD trajectory as well, linking closely to the broader implications of monetary policy adjustments by the Federal Reserve as well as the Bank of England.
Market Implications
Watch for any formal statements from the U.S. government regarding fiscal policy or trading relations, as these could affect both dollar valuation and gold prices. The EUR/USD remains a key focus; any surprises in gold pricing should see direct correlations in its movement.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Bearish | 1.1500 |
UBS | Bullish | 1.1800 |
UOB | Bullish | 1.1800 |
From the original
Gold prices hit a new record overnight. The gold rally has its foundations in central bank accumulation. Central banks that hold gold still hold a dollar reserve asset (just one that is independent of US Treasury control). That foundation has been built on with expectations of US
Related speeches
4 itemsUBS backs de-dollarization trend, lifts gold target to $5,400 an ounce
UBS is adopting a long-term view on dollar weakness, indicating a structural trend rather than a fleeting concern. This outlook suggests persistent inflows into gold and selected currencies, driven by factors such as central bank reserve diversification, highlighted by notable gold purchases from the People's Bank of China. The desk views this as a call to not just react to price movements but build a position in a de-dollarizing environment, expecting gold prices to surge to $5,400 an ounce over the next year due to sustained demand. Per the full note [source], while there's potential near-term support for the dollar from geopolitical tensions and rising oil prices, UBS emphasizes that the medium-term trajectory is one of depreciation fueled by U.S. fiscal challenges and policy uncertainty.
Is gold back?
Lead — The desk's thesis suggests that gold is finding renewed traction due to heightened investment demand and concerns over the U.S. fiscal outlook. Per the full note, gold's price has rebounded significantly from mid-July lows around $4,000/oz to levels near $4,600/oz, driven primarily by the U.S. Treasury's increased buyback operations of long-dated government debt. This commitment to buybacks signals rising concerns about government borrowing and the potential for currency debasement, reinforcing gold's role as a safe haven. With inflation persistent and the Federal Reserve poised to tighten further, the upward momentum for gold may face challenges despite this positive environment.