Gold prices could get worse before getting better. That's the latest take from UBS, which sees short-term pain but a longer-term opportunity in the yellow metal.

"Gold has faced renewed pressure as resilient labor market data and higher real yields prompted markets to shift expectations toward a possible rate hike this year," the Swiss bank's strategists Dominic Schnider, Giovanni Staunovo, and Wayne Gordon noted.

UBS describes the situation as a "double whammy." A run of stronger-than-expected U.S. economic data, particularly resilient labor market figures, has altered expectations around monetary policy.

Warsh Takes the Helm

Investors are increasingly bracing for tighter conditions under Federal Reserve Chair Kevin Warsh, who holds his first meeting as Chairman this week. According to the FedWatch tool, the federal funds rate is almost guaranteed to remain between 350 and 375 bps. However, the odds of a 25 bps hike in July and September stand at 6.3% and 27.8%, respectively.

For a non-yielding asset like gold, higher rates are a problem. Rising real yields increase the opportunity cost of holding bullion, while a stronger dollar further weighs on prices. SPDR Gold Trust (GLD) is down 0.43% year-to-date.

UBS strategists now believe gold could drift toward the $3,850 to $4,000 range in the near term as these macro pressures play out.

Yet, gold has already rebounded over the last few trading sessions. The metal set an intra-year low of $4,023 per ounce before rebounding to $4,360 on news of the deal with Iran.

Still, a few major institutions have abandoned their longer-term bullish outlook. UBS says it remains constructive over the next 12 months, viewing the sell-off as a potential buying opportunity rather than the end of the cycle.

The bank argues that structural forces continue to favor higher prices: deteriorating U.S. fiscal dynamics, expanding budget deficits, sustained central bank purchases, and an eventual shift back toward monetary easing. Its base case assumes the Fed cuts rates by up to 50 basis points in 2027, alongside below-trend U.S. growth.

A Shift Toward Asia

Meanwhile, the architecture of the bullion market is evolving and moving eastward. Singapore and Hong Kong are racing to establish themselves as indispensable trading hubs.

Singapore Exchange plans to launch an over-the-counter gold-clearing system by the end of 2026. According to Bloomberg, it received backing from a group including Deutsche Bank, DBS, and JPMorgan, which already relocated its gold trading desk to the city-state.

The Monetary Authority of Singapore will also begin offering central bank gold-vaulting services, aiming to attract sovereign reserves.

Hong Kong, unwilling to cede ground, is launching its own clearing system in July, with 11 domestic and international banks participating.

The system will not replace London, but rather complement it. An institutional foothold in Asia will connect regional demand with global liquidity during Asian trading hours. Technically, the development further boosts the yellow metal's appeal, as deeper liquidity throughout the day reduces costs for market participants.