UBS remains upbeat on gold even if the Federal Reserve hikes interest rates yet this year, commenting that the key is “real” rates rather than nominal rates. Real rates refer to the percentage return a saver or investor receives after allowing for inflation. Historically, gold’s performance has been mixed when the Fed has been in a tightening cycle, UBS points out. “In our view, what ultimately matters for gold are real rather than nominal yields,” UBS says. “Inflation, inflation expectations and the market's perception on whether the Fed is behind or ahead of the curve therefore need to be taken into account. While we expect the Fed to hike rates in December, we continue to think U.S. long-end real yields have room to fall further, supporting our positive gold view.” Additionally, other gold market-specific factors need to be considered, UBS says. For instance, the introduction and popularity of gold exchange-traded funds and “strong inflows” back in 2004-2007, combined with producer dehedging, “were important factors that helped gold rally even as the Fed hiked interest rates” back then, UBS adds.