A safe in Munich is stocked with various sizes of gold and silver bars. Sven Hoppe | Picture Alliance | Getty ImagesAccording to UBS, gold and silver are anticipated to see further increases in 2024 due to the expected action of the U.S. Federal Reserve to start lowering interest rates. The investment bank’s precious metals strategist, Joni Teves, stated that “We are expecting gold to be pushed higher by a Fed easing. Also this comes with a weaker dollar,” and she anticipates that the price of gold will reach $2,200 per ounce by the end of the year. Gold prices typically move inversely to interest rates, meaning that as interest rates decrease, gold becomes an attractive option compared to alternative investments like bonds, which would yield weaker returns in a low interest rate environment. In addition, lower interest rates weaken the dollar, making gold more affordable for international buyers, which in turn drives up demand. Despite uncertainties regarding the timing and scale of rate cuts, UBS has maintained its expectations for the Federal Reserve to ease its policy. Last week, the Fed announced its decision to leave rates unchanged in January, dashing hopes for a rate cut in March. Teves also noted, “In a scenario where the Fed is easing, we think silver can do really well. It tends to outperform a move in gold.” The attractiveness of gold as a safe haven asset has increased since the start of Israel’s conflict with Hamas on Oct. 7, which contributed to gold prices hitting an all-time high of $2,100 an ounce last month. “We do think investors will start to build allocations to gold in an environment where there is a lot of macro uncertainty [and] geopolitical risks,” Teves commented. Prospects for silver are also positive, with UBS predicting that silver is set to “really, really shine.” Teves explained that silver, being less common as a geopolitical and safety haven compared to gold, has underperformed gold in the past few years. However, the scenario could change in its favor when the Fed eases. “In a scenario where the Fed is easing, we think silver can do really well. It tends to outperform a move in gold,” Teves stated. “Silver has been underperforming gold quite a lot. So there is a lot of catching up to do and I think the move could be quite dramatic,” she added. The performance of silver is closely tied to the overall health of the economy due to its broad industrial applications. The precious metal is widely used in the production of automobiles, solar panels, jewelry, and electronics. Currently, gold is being traded at $2,052 per ounce, while silver is priced at $22.69 per ounce.
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