UBS expects gold to remain volatile, but sees the risk-reward profile increasingly skewed to the upside into year-end, according to ETNet.

Joni Teves, precious metals strategist at UBS Global Wealth Management's economics and strategy research team, said a September rate hike by the Federal Reserve would likely trigger an instinctive pullback in gold as real rates and the dollar react, though the decline should be contained. She said seasonal physical demand should improve, while institutional and official-sector investors seeking strategic positions may become more active on weaker prices.

If the Fed leaves rates unchanged, UBS expects a stronger upside reaction as investors chase gold higher, especially if the decision is seen as raising the risk of policy error or reviving questions about the Fed's independence. Teves said easing short-term rate pressure would combine with longer-term diversification demand, making gold's upside potentially larger than the expected downside in a hike scenario.