CIO base case remains that the Fed's hiking cycle is over, but they acknowledge a higher likelihood of a further hike by end-2023, and no cuts in 2024. (UBS)

The Fed pause was expected while the magnitude of the upgrades to growth, the labor market, and "the dots" was more of a surprise. Even more unexpected was Jerome Powell's comment on the higher "neutral" level of the real interest rate. Overall, our base case remains that the Fed's hiking cycle is over, but we acknowledge a higher likelihood of a further hike by end-2023, and no cuts in 2024. Moreover, the USD has also gained ground with comparisons being drawn between economic prospects in the US versus those in the rest of the world.


So, how does this impact gold? Overall, headwinds to gold will persist, mostly via the yellow metal's negative correlation with real yields (and as a consequence a stronger USD). Typically, higher real yields lower demand for a non-yield bearing asset like gold. For example, an increase in US 10-year TIPS (our real yield proxy) of around 200bps has seen a decline in the gold price of between USD 200–500/oz. However, we argue that this time, strong central bank demand should continue to help offset modest selling by exchange traded funds (ETFs). Equally, a return to net-buying by ETFs seems unlikely until 1H24. As such, we prefer to wait, seeing setbacks below USD 1,900/oz as opportunities to add gold.


Main contributors - Wayne Gordon, Giovanni Staunovo


Original report - Gold: Downside risks persist, 22 September 2023.



  • Gold's resilience to higher US real yields and broad USD strength is impressive; central bank buying, and to a lesser extent a view the US economic growth eventually "breaks" are key.
  • The Fed pause was no surprise, but the upward lift in "the dots" and Powell's relatively hawkish response on the neutral level of real yields was unexpected.
  • Short-term downside risks for gold persist as price support from stronger gold ETF demand likely is delayed. However, we stick to our higher price view over 12 months.