UBS sees upside in gold

UBS sees upside in gold | Daily Tribune

Switzerland-based UBS Investment Bank expects gold prices to recover due to looming geopolitical uncertainties and prospects of rate cuts by the US Federal Reserve (Fed).

UBS precious metals strategist Joni Teves said the price of gold could rise over the $2,450 or 5 percent decline recorded this week.

Deep rooted sentiment

“Positive sentiment towards gold seems to have become deep-rooted, as suggested by the numerous conversations we’ve had with investors in the past several weeks,” she said in a media briefing on Friday.

Teves said more investors might demand gold to compensate for lower returns from bonds which will be driven by a possible rate cut by the Fed.

“There is still the expectation that policy easing is more likely to be the Fed’s next move despite uncertainty on the timing and the extent of rate cuts,” she said.

“In spite of the constant recalibration of Federal Reserve policy expectations, we think investors currently view the threshold for the Fed to pivot towards rate hikes to be quite high,” Teves continued.

Reuters has reported that the US Treasury yield for 10-year notes declined to 4.4669 percent on Friday from 4.475 percent on Thursday, following market analyses which project a steady rate for the Fed.

Teves said the forecast is backed by the recent expansion in US manufacturing at 50.9 from a contraction of 49.9 in the Purchasing Managers’ Index.

US presidential poll uncertainties

Apart from the Fed rate, Teves said economic uncertainties from US presidential elections in November could encourage investors to stock gold.

US surveys show some support for the return of businessman Donald Trump who is seen as a trade protectionist and a sympathizer of Russian president Vladimir Putin.

“Although it is probably still too early for investors to position specifically for the upcoming US elections, our conversations suggest that this is on the radar as far as gold views are concerned,” Teves said.

“We think that on balance, the bias is for the overall uncertainty around the event to be viewed as a positive for gold, adding to the list of reasons to have it in the portfolio as a diversifier,” she added.