UBS advises holding gold to diversify portfolios and hedge risks

The price of gold has failed to stabilize above $3,400 per ounce for the third consecutive time. Investors may interpret this as a sign to position for downside. However, according to UBS analysts, gold should be considered a means of portfolio diversification and risk hedging.

In the current situation, the bank's experts advise against viewing gold as a separate instrument entirely dependent on price fluctuations.

A survey by the World Gold Council and YouGov found that interest rates, inflation, and geopolitical instability are the main reasons behind central banks' steady demand for the precious metal. Trade tensions are another important factor. Additionally, the Trump administration's unpredictable policy contributes to the erosion of confidence in the dollar. All of these aspects are currently supportive to gold, though to varying degrees.

In this regard, UBS recommends holding 5% of assets in gold with a target price of $3,800 per ounce. The bank predicts that the euro and shares of European companies will be among the key beneficiaries of weakening confidence in US policymaking.