UBS remains bullish on gold and silver amid tariff threats
Mon Jan 20 2025
UBS remains bullish on gold and silver prices in 2025 despite better-than-expected US economic data. The bank sees strong demand from central banks for diversification assets such as gold and highlighted the unpredictability of Donald Trump’s second term in the White House.
While US tariffs on Mexico would put silver in the crosshairs, UBS sees the supply-demand fundamentals tightening in 2025. Mexico is the world's largest producer of silver.
The multinational investment bank pushed its weaker US-dollar view into 2H25 and reduced its Federal Reserve rate cut view to 50bps from 100bps over the year. These changes are based on US economic data that was better than anticipated and projections that further declines in inflation will be harder fought unless larger problems emerge in the economy, especially in the domestic labor market.
“What hasn’t changed is our view of strong demand for diversification assets such as gold from central banks, sovereign funds, and asset managers, particularly with trade and geopolitical uncertainties likely to persist alongside US government debt concerns,” UBS said in a recent report.
“If we’ve learned anything from Donald Trump’s first term (and in recent weeks), it’s that the incoming US president is unpredictable. Bouts of equity market volatility will also likely become more frequent, particularly given high sector and geographical concentration across portfolios and lofty equity market valuations,” the report said.
Donald Trump was sworn in on Monday.
UBS doesn’t believe higher tariffs will be limited to China since Trump has pledged tariffs of 10% on global imports and a 25% import surcharge on Canadian and Mexican products. “But the scope, timing, magnitude, and points of retaliation remain unknown.”
“A point in case is the US graphite sector; in December 2024, the industry sought tariffs as high as 920%, which it deemed necessary to compete with its Chinese counterpart. To be clear, higher universal tariffs will result in uncertainties over the trajectory of US and global economic growth,” the bank added.
UBS anticipates these uncertainties point to another year of strong official sector gold purchases alongside diversification demand from less rate-sensitive parts of the investment community.
As such, the bank believes that gold may reach another record high in 2025 and target US$2,850/oz by year-end. Silver should move up with gold and outperform on the back of a recovery in global industrial production.
Platinum and palladium should moderately increase in price but lag gold and silver.
Last year, gold and silver posted their strongest annual gains since 2020 despite a selloff following Trump’s US election victory. Platinum and palladium lagged, finishing 2024 in negative territory.
“For silver, price drivers frequently alternated between investment drivers (and its relative value to gold) versus its physical use, which is rooted in industrial demand,” UBS said. “Silver traditionally has shown greater correlation to gold after periods of strong price momentum in the yellow metal. This was again the case in October, before reverting to its industrial roots as Chinese policy support disappointed and Trump secured a second term.”
Source: https://www.bnamericas.com/