Editor's note: International gold prices have recently taken a "roller coaster" turn, drawing significant market attention. What exactly has happened? Welcome to DDN Business Insider. In this edition, we are joined by Ms. Li Huiqi, Macro Strategist at UBS Wealth Management Investment Office, to discuss the logic behind the recent fluctuations in gold prices and trends in the industrial metals sector. Ms. Li, hello!
【Anchor】Last week, the spot gold price experienced what can be described as an "epic" crash, with a maximum single-day drop of 10%. Within just two days, the gold price rapidly rebounded and returned to $3,000. Can you explain why the gold market has witnessed such dramatic fluctuations recently? Additionally, the initial plunge occurred after U.S. President Trump nominated Kevin Warsh as the new Federal Reserve Chairman. Some believe this was a direct catalyst for the drop in gold prices. What are your thoughts on this?
Yes, indeed, in the past few days, gold has exhibited dramatic price movements in an epic market cycle. First, we need to view the gold downturn within a longer time frame. Last year, gold had already risen over 60%. At the beginning of this year, it was continually reaching new highs. Therefore, a mid-term retracement after such a significant surge is not particularly surprising. Regarding this epic drop, we think it's largely due to some congestion in funding positions, along with technical factors that have amplified the volatility.
Indeed, compared to several previously favored candidates, Warsh's dovish stance is less pronounced. However, in his recent remarks, he has actually been more dovish; he supports rate cuts and believes that the recent AI wave will increase U.S. economic productivity, leading to a long-term decline in interest rates. Therefore, we believe his appointment will not lead to a significant shift in the Federal Reserve's monetary policy. Of course, his nomination coincided with the peak of gold's recent surge, so the market may have used his appointment as an excuse to take profits.
As gold prices rebound, it seems that the market has absorbed the impact of the news. In your view, how could Kevin Warsh's appointment as Federal Reserve Chairman affect the future direction of the Fed's policies?
We still believe that this year's monetary policy will be data-driven. Recently, the data has indeed stabilized, which might lead the Fed to consider rate cuts in the second half of the year. However, overall, we think that U.S. economic data still leans towards supporting a continued period of easing by the Fed.
Now, on the other hand, what are your expectations regarding the independence of the Fed's future policies?
Concerns about the independence of the Fed's policy have emerged, particularly due to the recent investigation into Chairman Powell by the U.S. Department of Justice, which has raised worries about the Fed's autonomy. However, considering the current constraints of the Fed's overall system, Warsh's appointment may lead to some minor adjustments in the Fed's monetary policy in the medium to long term. Still, the likelihood of extreme changes is quite low.
This year, another point of market focus is the upcoming midterm elections in the U.S., which could bring new uncertainties to the market. Considering the potential changes in policy stance that elections might trigger, such as the introduction of more stimulus measures or adjustments to fiscal policy, how do you think these factors will influence the gold price trend in the midterm?
Generally speaking, during the years of U.S. midterm elections, markets tend to be more volatile. However, there are usually no significant shifts in the overall market trends. Geopolitical situations may see some fluctuations, and in such conditions, gold often benefits. With ongoing geopolitical tensions and the current easing by the Fed, we believe the overall cycle will continue. Before the midterms, the government will likely lean towards implementing supportive economic stimulus fiscal policies, which could exacerbate fiscal deficit pressures. We think these factors support gold, which is why we anticipate that gold will likely reach new highs in the coming quarters. Our latest gold forecast has been adjusted to $6,200. After the midterms, as political risks may slightly decrease and the political landscape becomes clearer, prices might slightly retreat to $5,900 by year-end. Nevertheless, this still leaves substantial upside potential from current levels.
You just mentioned the report released by UBS last week, which stated that the target price for the bullish scenario for gold is $7,200 per ounce, while the target price for the bearish scenario is $4,600 per ounce. What considerations are behind this forecast?
This primarily stems from the recent data from the World Gold Council's fourth quarter report, which reflects that since the fourth quarter of last year, the demand for gold has been continuously increasing against the backdrop of rising gold prices. The frequency of geopolitical events from the beginning of the year has also led us to believe that there is still considerable upside for gold.
Regarding the bearish scenario, as mentioned earlier, after the significant bullish trends in gold prices, a medium-term correction is still a possibility. If some of the factors supporting gold's upward movement, such as falling real interest rates and the trend of de-dollarization, were to reverse, it could lead to significant corrections in gold prices at these high levels. Therefore, in the short term, gold could indeed experience considerable volatility; however, we remain optimistic about the medium-to-long-term trend.
Looking at the industrial metals sector, the recent performance of metals like copper and aluminum has also been widely discussed. On one hand, this is likely related to the "spillover effect" from gold's volatility, but we would like to know what different upward logic might be driving these industrial metals?
For base metals, particularly copper, they benefit from some structural factors, including the global shift towards clean energy and electrification. High-end manufacturing and clean energy heavily rely on metals like copper and aluminum. Therefore, demand for these metals has seen a significant increase over the past two years. Additionally, we observe that global supply remains relatively tight this year. Thus, overall, supported by the imbalance between supply and demand, prices for copper and aluminum are well-supported.
In the current rally of industrial metals, electricity shortages overseas are regarded as an important driving force, particularly affecting aluminum prices. What is the actual situation regarding these electricity shortages overseas?
There is a saying that "the endpoint of AI is electricity." The recent surge in AI development has led to a significant spike in electricity demand from data centers worldwide. We have also heard from recent comments, such as those made by Microsoft's CEO, that the biggest challenge in the AI industry is not an excess of computing power but rather a shortage of electricity. For instance, OpenAI's large models require electricity during training equivalent to the annual energy consumption of about one million U.S. households. This type of news illustrates that the development of AI will likely lead to increased electricity demand in the future.
Over the past year, we have indeed heard about power outages in the U.S. and Europe. This situation, on the one hand, reflects the electricity demand from data centers. Of course, there are other pressures as well, such as extreme weather impacts and the aging infrastructure in Europe and the U.S. that is being updated too slowly. All these factors combined show that the overall supply-demand dynamics for electricity overseas are in a state of relative shortage. Therefore, we believe that localized electricity shortages may continue to occur in the future.
Finally, returning to the investment perspective, considering the factors we've discussed, what is your overall expectation for the metal sector in 2026? For ordinary investors, when considering investments related to gold and industrial metals, what specific advice do you have, and what risks should they be aware of?
For gold, we believe there will be considerable volatility in the short term, but in the medium to long term, gold's role in an investment portfolio remains effective. We are optimistic about gold's long-term upward trend, but investors should manage their positions carefully and be mindful of the fluctuations.
For base metals, we favor copper and aluminum. This optimism is partly due to structural demand from clean energy and also because supply is relatively constrained. These factors may continue to support high prices for copper and aluminum, along with a potential upward trend. We also see opportunities in the copper and aluminum mining sectors.
Thank you, Ms. Li, for sharing your insights. That's all for this episode. If you would like to receive more market analysis, remember to follow us on YouTube or download our APP. I'm Yunfei Zhang. Thanks for watching, and see you next time.
Anchor: Laura Cheung｜Edited: Kelly Yang, Laura Cheung, Rachel Liu｜Translate: Kato Ip｜Proofread: Chris Liu
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