Investing.com - Gold regained most of the ground it lost during the sharp decline at the end of October, returning to record territory by the end of December.

The yellow metal reached a new record high on December 29, capping its strongest year since 1979, with a 64% rise in 2025 and gains of around 140% since the beginning of 2023.

UBS strategists led by Giovanni Staunovo said in a note: "Gold reached new record levels at the end of December, driven by demand for real assets amid a weak US dollar, geopolitical tensions, institutional uncertainties, and seasonal liquidity decline."

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Despite the magnitude of the recent rise, UBS believes that the underlying backdrop remains supportive of further increases in 2026. Strategists point to a sharp decline in U.S. real interest rates, which they describe as the 'opportunity cost of holding non-yielding assets like gold,' now at its lowest level since mid-2023.

Moreover, demand from investors and central banks remains near record levels, while concerns about rising government debt across advanced economies continue to support interest in gold as a store of value. Together, these factors justify expectations for new record levels next year.

Strategists wrote: 'Our view on gold remains positive,' having recently raised the gold price target for March 2026 to $5,000.0000 per ounce.

They added: 'We believe that gold's role as a diversifier and hedge has not diminished. For investors with an inclination toward this asset class, we believe that allocating a mid-single-digit percentage to gold can fit into a diversified portfolio.'

Recent geopolitical events have bolstered the defensive characteristics of the precious metal. UBS highlighted the unexpected U.S. military detention of Venezuelan President Nicolás Maduro over the weekend, prompting a widespread reaction across markets.

Gold and silver prices rose by 2.2% and 4.3%, respectively, that day, while Brent crude fell by 1.3%.

The bank also sees structural demand trends providing continued support. Strategists expect central bank purchases of gold to reach between 900 and 950 metric tons in 2025, just shy of last year's record.

They expect total global demand for gold to be around 4,850 metric tons, which would be the highest level since 2011.

In addition, UBS points to a sharp rise in government debt across advanced economies, expected to reach around 110% of GDP this year, up from about 75% two decades ago, and is projected to rise to 118% by the end of the decade, according to the International Monetary Fund.

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