Global commodity markets are facing renewed uncertainty as geopolitical tensions, energy supply disruptions, inflation risks, and changing financial conditions influence prices across several sectors. Against this backdrop, UBS expects gold prices could face further short-term pressure before recovering. The bank warns that rising US real yields and a stronger US dollar could push gold toward 4,000 US dollars per ounce. However, it remains optimistic about gold’s longer-term prospects, supported by central bank purchases, investment demand, and concerns over public debt.
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Why Could Gold Prices Fall Toward 4,000 US Dollars?
According to UBS, gold could decline toward 4,000 US dollars per ounce as rising US real yields and a stronger dollar increase the opportunity cost of holding gold, which does not pay interest.
Despite this near-term risk, UBS sees signs of resilience in the gold market. Gold-backed exchange-traded funds (ETFs) have recorded steady inflows in recent weeks, while preliminary figures indicate that central bank purchases remained strong in September.
China purchased 23 metric tons of gold, Poland acquired 25 metric tons, and Uzbekistan added 7 metric tons during the month, according to the figures cited in the report.
UBS believes these purchases reflect sustained demand for gold as central banks diversify their reserves. Concerns about increasing public debt and rising debt-servicing costs, along with continued buying from China, could provide further support to prices.
The bank expects gold to stabilise and resume its upward trend toward the end of the year and into 2027, even if prices experience another decline in the near term.
Geopolitical Tensions Keep Oil Supply Risks in Focus
Crude oil prices began the week lower after US President Donald Trump said on Sunday that Russia and Ukraine had agreed to an “energy ceasefire” effective immediately. On Friday, Trump had also said Russia agreed to supply diesel to global markets to help reduce fuel prices.
However, the decline in oil prices moderated as uncertainty remained over the terms of the ceasefire. Ukrainian President Volodymyr Zelenskyy said his country was “awaiting details” from the United States.
The proposed diesel arrangement also faced criticism from both parties in the US Congress, where imports of Russian energy have been prohibited since 2022. Meanwhile, tensions in the Middle East continued, with Yemen’s Houthis extending attacks on Saudi Arabia’s main airport over the weekend.
UBS expects shipping through the Strait of Hormuz to recover gradually. However, it believes the current supply situation remains vulnerable to further disruptions.
Oil shipments through the Strait of Hormuz and the Red Sea have faced interruptions amid ongoing attacks. Although crude exports from the Middle East have improved in recent months, the latest figures show that Gulf oil loadings remain below pre-conflict levels. Seaborne diesel exports in September also remained significantly below the levels recorded at the beginning of the year.
The Group of Seven (G7) decision to release 100 million barrels of emergency oil stocks through the International Energy Agency (IEA) could offer temporary relief. However, UBS warns that drawing down these reserves would reduce the buffer available to manage future supply disruptions.
If geopolitical tensions persist or new supply outages emerge, oil prices could become increasingly sensitive to unexpected disruptions.
UBS Remains Positive on Industrial Metals, Especially Copper
Beyond gold and energy, UBS maintains a constructive outlook on industrial metals, with copper remaining its preferred exposure.
The copper market is facing supply constraints due to limited mine production, while Chinese demand remains strong and inventories outside the United States are declining.
Longer-term demand could also benefit from investment in electricity grids, data centres, and electrification projects. These sectors require substantial quantities of industrial metals, potentially supporting consumption over time.
According to UBS, the combination of restricted supply and structural demand could continue to create opportunities in industrial commodities.
Agricultural Commodities Face Weather-Related Risks
UBS also sees supportive conditions for agricultural commodities as weather disruptions add uncertainty to global food supplies.
Global food prices rose in September to their highest level since November 2022, according to the report. A strengthening El Niño is disrupting rainfall patterns across major agricultural growing regions, raising concerns about crop production.
With inventories already tight and supply chains facing geopolitical and energy-related pressures, adverse weather could have a greater impact on agricultural prices than in previous cycles.
Why UBS Recommends Diversification Across Commodities
UBS believes broad commodity exposure can help investors diversify their portfolios because commodities have historically shown low correlations with equities and bonds.
The bank argues that commodities can potentially provide a source of returns while also helping portfolios withstand periods of market stress. It favours actively managed strategies that spread exposure across precious metals, energy, industrial metals, and agricultural products rather than concentrating investments in a single sector.
For gold, the key distinction is between the short-term outlook and longer-term fundamentals. A stronger US dollar and higher real yields could push prices toward 4,000 US dollars per ounce, but central bank demand, ETF inflows, and reserve diversification may help support a subsequent recovery.
UBS therefore expects gold to stabilise and resume its upward trajectory toward the end of the year and into 2027, while continuing to see opportunities across the broader commodity market.
FAQ’s
1. Why does UBS expect gold prices could fall toward 4,000 US dollars per ounce?
UBS expects gold to face short-term pressure from rising US real yields and a stronger US dollar. These factors increase the opportunity cost of holding gold, which does not generate interest. However, the bank believes sustained central bank purchases and investment demand could help prices stabilise and recover over the longer term.
2. Does UBS expect gold prices to recover after a potential decline?
Yes. Despite the possibility of gold falling toward 4,000 US dollars per ounce, UBS expects prices to stabilise and resume their upward trend toward the end of the year and into 2027. Central bank diversification, concerns about public debt, continued Chinese purchases, and steady inflows into gold-backed ETFs are among the factors supporting this outlook.
3. How are central bank purchases supporting the gold market?
Central banks purchase gold to diversify their reserves and reduce dependence on other reserve assets. The UBS report cited September purchases of 23 metric tons by China, 25 metric tons by Poland, and 7 metric tons by Uzbekistan. Such demand can provide structural support to gold prices, even when stronger US yields and dollar movements create short-term pressure.
4. How could geopolitical tensions affect oil and other commodity prices?
Conflicts and disruptions around major shipping routes, including the Strait of Hormuz and the Red Sea, can restrict energy supplies and increase price volatility. Emergency oil-stock releases may provide temporary relief, but they do not necessarily resolve underlying supply imbalances. Persistent tensions could also affect industrial metals and agricultural commodities through energy costs and supply-chain disruptions.
5. Which commodity sectors does UBS favour beyond gold?
UBS maintains a constructive outlook on industrial metals, particularly copper, because of constrained mine production, strong Chinese demand, and investment in electricity grids, data centres, and electrification. The bank also sees opportunities in agricultural commodities, where tight inventories, geopolitical pressures, and changing rainfall patterns associated with El Niño could affect global food supplies.
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