Gold stumbled this month after a strong start to the year. However, UBS Global Wealth Management sees more upside ahead. The precious metal is down about 2% in May, as optimism around a possible U.S. debt ceiling deal grows. Gold is still up more than 7% for 2023, and UBS thinks it could reach a record high of $2,100 per ounce, citing three reasons: “Central bank demand should remain robust:” Mark Haefele, chief investment officer at UBS Global Wealth Management, said 2022 was the 13th straight year that central banks were net buyers of gold, and demand is unlikely to let up anytime soon. “Based on the 1Q23 data from the World Gold Council, central banks are on track to buy around 700 metric tons of gold this year, much higher than the average since 2010 of below 500 metric tons,” he wrote. Dollar weakness: The dollar index, which tracks the U.S. currency’s performance against six others, is down 0.2% over the past year, which should be supportive for gold prices. “The direction of a weakening dollar is clear, with the US Fed having signaled a pause in its current tightening cycle after 500 basis points of rate hikes over the past 14 months,” Haefele wrote. Recession risk: “Overall, recent data coming out of the US showed the country’s growth is slowing, with weaker-than-expected 1Q GDP, six consecutive months of contracting manufacturing activity, and the weakest consumer sentiment since November,” according to UBS. @GC.1 YTD mountain Gold futures in 2023 “We think gold should remain a hedge within a portfolio context, with our analysis showing that around a mid single-digit percentage allocation to gold in a balanced USD-based portfolio would have improved risk-adjusted returns and lessened drawdowns over recent decades,” Haefele said. — CNBC’s Michael Bloom contributed reporting.