UBS Says Investors Should Stick With Gold As a Hedge Even As Prices Fall

UBS has a message for investors worried about gold’s tumble into a bear market: don’t ditch the precious metal now.

The investment bank’s global wealth management office doubled down on its bullish stance on gold in a note published on Monday. Analyst Wayne Gordon and his team said that despite the recent declines, they think investors should stick with gold as a defensive hedge.

That might sound strange, given that the metal has seen its price drop sharply during the Iran war, an event that would typically see investors flocking to the metal for its safe haven statu.

Since the war broke out at the end of February, gold prices have struggled, down more than 20% from their January peak after surging to a series of records last year.

But Gordon’s team isn’t concerned, even as the trajectory of the war remains unclear.

“We would not view this situation as a Volker-Bernanke moment for gold—i.e., a pivotal turning point in central bank policy—as we see notable differences that suggest otherwise and expect strong support down the road from our baseline macro developments,” he said.

The analyst added that his team’s view on the precious metal as an effective portfolio hedge remains unchanged, and he predicted that gold prices will soon resume their climb.

Gold’s recent decline can be chalked up to a few factors. While it may be prized as an inflationary hedge, gold isn’t a reliable inflation indicator. Meanwhile, enthusiasm for interest rate cuts and speculative trading momentum has waned.

In Gordon’s view, though, if history is any indication, negative views of gold’s future are likely premature.

“For many investors, gold’s muted response to geopolitical tensions and elevated price volatility may appear counter-intuitive,” he said. “However, history shows that gold does not always rally during periods of conflict, particularly in the initial phase.”

The analyst recalled how, during the oil shocks of the 1970s, a period that has been in focus recently as the Iran war has pushed oil prices upward, inflation fears sparked strong momentum for gold. However, during the war with Iraq, competing macroeconomic forces kept prices mostly subdued.

Gordon acknowledged that, for these reasons, it is difficult to directly compare gold prices across periods of historic geopolitical conflict. A clear takeaway, though, is that gold price action is often driven not by direct conflict itself but by policy and economic backdrops.

“Gold’s typical early-cycle hedge role is under pressure as markets adjust to expectations of higher interest rates and a strong US dollar, which are short-term obstacles,” he said. “However, this isn’t a breakdown in gold’s performance but a delay.

UBS’ bullish view on gold is shared by prominent investors, such as hedge-fund billionaire Ray Dalio, who has repeatedly praised gold as a defensive investment.