UBS: Volatility has risen sharply, beware of a short-term pullback in gold; recently, gold has been riding the coattails of platinum, silver, and palladium.
UBS sends investors its latest clear signal: although it remains bullish on gold in the long term with a target of $4,750 per ounce, and gold prices have already achieved half of that target's gain over the past two months, a short-term warning has been sounded.
On January 6, according to news from Wind Trading Desk, UBS's Global Macro Strategy team stated in its latest research report that the recent rise in gold prices is lacking in substance; the rally in December was not driven by gold’s own independent positives, but simply "hitched a ride on the explosive performance of silver, platinum, and palladium."
The bank particularly emphasized that what is more concerning is that gold's volatility has soared to levels seen at the onset of the Russia-Ukraine conflict, and this high volatility is eroding gold’s attractiveness as a ‘ballast stone’ in private investment portfolios.
Models show that the relationship between gold and real interest rates has broken down, and without new news to drive it, the residuals are accelerating significantly, which is usually a precursor to a correction.
The report points out that nevertheless, given factors such as global central bank buying, diversification demand, ETF inflows, and lagging valuations of gold mining stocks, UBS maintains its long-term bullish view and believes that conditions for a large decline (over 20%) are not in place.
Model failure and soaring volatility: the biggest short-term enemy
The report notes that since Russian central bank reserves were frozen following the Russia-Ukraine conflict, the traditional gold pricing model has been "broken."
Previously, gold and U.S. real interest rates had a very strong negative correlation—for every 100 basis point move in real rates, gold prices would usually move in the opposite direction by about 12-14%.
But since August 2025, although real rates have not fallen significantly, gold prices have surged without any fundamental news support, and this divergence from fundamentals became especially extreme in December 2025.
According to the bank, the biggest risk to investors now is volatility. Current gold volatility has returned to levels seen at the outbreak of the Russia-Ukraine conflict. Historical data analysis shows that high volatility is often linked to low future returns. The 3-month implied volatility of gold has risen from 21 to 51.
UBS points out that the greatest potential for gold’s rise comes from allocations by private investment portfolios, yet private investors dislike high volatility. If gold ceases to be just a safe-haven asset and becomes a highly volatile asset, its appeal in asset allocation will significantly diminish.
"Hitching a ride" rally: the real stars are silver and platinum group metals
Regarding December's gold price action, UBS Global Macro team strategist Joni Teves pointed out sharply in the report: "Gold was merely hitching a ride on the wild swings of white metals in December."
The bank believes that the true assets experiencing supply shortages, lack of liquidity, and explosive rallies are platinum, silver, and palladium. Inverted forward curves confirm the extreme shortage of these metals in the spot market.
A key technical indicator is the Gold-Silver Ratio, which has now dropped to around 65. Over the past ten years, whenever this ratio falls to around 65, average performance for both gold and silver over the following three months tends to be weak.
Similar historical scenarios occurred in January 1980, June 1983, May 1987, February 1998, April 2006, April 2011, July 2016, and February 2021.
UBS also said that when investors start chasing silver in “high beta” trades, it is often a signal that the market is overheating and needs to cool down.
Long-term logic unchanged: not yet time for a "big retreat"
Despite the short-term risk of a correction, UBS believes conditions are not yet in place for a major decline. The bank analyzed the common characteristics of historical periods when gold fell sharply (by nearly 20%), finding that these periods often coincide with sharp drops in stock market volatility and credit spreads, falling inflation, and a significant appreciation of the dollar.
But UBS expects the opposite to occur in the next 3-6 months, and thus maintains its long gold positions. At the same time, UBS stresses that the long-term upward trend for gold has not ended—the $4,750/oz target remains valid, mainly based on the following supports:
Central bank buying: Although developed country central banks hold large amounts of gold, emerging market central banks’ gold reserves only account for 7-11% of their total reserves. While they may not buy as aggressively as recently, they will continue to buy on pullbacks, providing support for gold prices.
Stable ETF inflows: In 2025, gold ETF inflows have maintained steady growth. UBS says that although gold hit all-time highs in December, there was no surge in buying, indicating investors are diversifying steadily through gold ETFs.
Diversification demand: Bond-equity correlation data shows that when U.S. core CPI is relatively high, the correlation turns positive (reaching as high as +0.30). Gold becomes one of the few assets that can help diversify risk.
UBS expects bond-equity positive correlation to continue until U.S. core inflation sustainably drops below 2.6%. Over the next 6 months, UBS forecasts inflation to rise to an annual rate of 3.5%, which will sustain demand for gold.
Gold mining stocks are seriously undervalued: Investors now prefer to hold physical gold instead of mining company shares, causing significant lag in gold mining stocks’ performance. Currently, the implied gold price in mining stock valuations is only about $3,600/oz—far below spot prices—which presents a buying opportunity.
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