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After gold prices surpassed $2500, they showed initial signs of fatigue, but UBS believes that with the Federal Reserve's interest rate cut imminent, coupled with strong central bank demand, there is still room for gold prices to rise in the future.

On Thursday local time, Joni Teves, UBS's Global Precious Metals Strategist, released a report stating that as gold prices continue to hit new historical highs, the market is gradually adjusting to prices above $2500 per ounce. The short-term trend of gold prices mainly depends on the policy signals released by Powell at the Jackson Hole conference later this week, and there is a possibility of a brief pullback.

Teves mentioned in the report that although the recent rise in gold prices does not have an obvious catalyst, the overall macroeconomic environment is generally favorable for gold. Expectations of the Federal Reserve's loose monetary policy, the decline in real interest rates, and the weakening of the US dollar are all important factors driving the rise in gold prices. In addition, the continued existence of geopolitical risks, as well as the upcoming US elections and their potential impact on fiscal policy, have also increased investors' interest in gold.

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As previously reported by Wall Street Journal, over the past year, while Asian investors have been on a gold-buying spree, Western investors have been on the sidelines. Now, with the Federal Reserve's interest rate cut approaching, Western investors have also joined the gold-buying frenzy.

Data from the World Gold Council, an industry organization, shows that since May, the holdings of physical gold ETFs have increased by 90.4 tons, equivalent to $7.3 billion, with positive net inflows in seven of the past eight weeks.

The UBS report also pointed out that although the net long positions on the New York Commodity Exchange (Comex) have increased recently, the level is still below the historical high, indicating that the overall market pricing is still relatively light, and investors still have ample room to continue increasing their allocation of gold.

UBS expects that as the Federal Reserve begins to cut interest rates, the cost of holding gold will decrease, and the inflow of funds into gold ETFs will further increase.

In terms of physical demand, UBS has observed that as gold prices continue to rise, physical demand for gold does face certain pressures. In July, the total gold imports of China and India decreased by 58% year-on-year, although due to the strong performance at the beginning of the year, the total imports for the year to date still increased by 5%.

However, with the arrival of seasonal demand, UBS expects the physical demand in China and India to pick up. In India, the wedding and festival season is approaching, which is usually a key period for gold consumption, and lower import taxes and a strong economic outlook are signs of increased gold demand.

In addition, global central banks—the key drivers of the previous rounds of gold price increases—are still buying gold. India's gold reserves increased by 5 tons in July, while China maintained its gold reserves unchanged for the third consecutive month.UBS points out that although the pace of central banks' gold purchases has slowed down in recent months, they will still be net buyers of gold. The gold holdings of many emerging market central banks are still relatively low compared to total reserve assets, indicating that these central banks still have room to increase their gold holdings.