Gold Keeps Climbing Over Concerns About U.S. Debt Levels. UBS Says It Has Plenty Of Room To Run.

Gold is on track to end the week with a 5% gain amid concerns over U.S. debt levels and a weaker dollar.

The price of gold climbed more than 1.5% and clocked in at $4,640.40 at 10:49 a.m. ET. It is moving to a three-month high.

The precious metal had reached a high of $5,600 earlier this year, but then saw its worst quarterly performance since 2013 in the second quarter of the year.

In this context, UBS analyst Giovanni Staunovo said that the international context that fueled gold's growth last year is back, and that "should lift the price of gold to $5,400 per ounce over the next 12 months, in our view."

At the same time, the fact that U.S. debt topped $40 trillion for the first time and the U.S. Treasury announced accelerated buybacks, is also "the kind of structural, long-term driver gold investors are underwriting," according to a quote Diane Garrett, executive chairman and CEO of Hycroft Mining, gave to CNBC on Friday.

"It also tracks with why central banks keep rotating reserves out of Treasuries and into gold," she added.

When the war with Iran began, markets anticipated that higher energy prices and supply disruptions could fuel inflation, potentially forcing central banks to maintain higher interest rates.

That combination weighed on gold. Instead of benefiting from geopolitical turmoil, the metal declined, challenging the conventional assumption that investors automatically rush into gold when global risks intensify.

Now, the economic calculus is changing. The turning point came after the Federal Reserve's meeting at the end of July, when policymakers delivered what investors interpreted as a more dovish message than expected. Expectations that the Fed could maintain a less aggressive approach toward interest rates helped push real yield expectations lower and made gold more attractive by comparison.

China has also emerged as a major source of new demand. The country reported purchasing nearly 20 metric tons of gold in July, its largest monthly acquisition since October 2023. Such a substantial purchase adds another source of support for a market already benefiting from shifting expectations around U.S. monetary policy.

China has been building its gold reserves as part of a broader effort to diversify its holdings, making its purchasing activity closely watched by traders. Large central bank purchases can have an outsized effect because they remove significant quantities of gold from the available market while also signaling long-term institutional demand.