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The Swiss banking giant is recommending that investors buy the yellow metal for insurance.
UBS Group’s (NYSE:UBS) wealth management unit says gold will probably trade between $1,200 and $1,300 an ounce in the short-term, and is recommending that investors buy the yellow metal for insurance.
“We’re not saying we have a bullish bias; we’re not saying we have a bearish bias,” Wayne Gordon, the firm’s executive director for commodities and foreign exchange, told Bloomberg.
“We’re saying that tactically, people should be buying it somewhere near $1,200 and selling it again somewhere near $1,300, and it’s because we have a view that real rates go sideways. So the pickup in nominal rates will be equally matched by the pickup in inflation,” Gordon added.
If US unemployment keeps falling, and the US Federal Reserve keeps raising interest rates no matter what inflation data shows, that will be negative for gold in the short term, he said.
Other analysts agree with this short-term forecast. In fact, after last week’s hawkish comments from the world’s biggest banks, it seems most central banks will follow the US and tighten policy measures, which could hurt gold.
“We still have two rate hikes factored in for the [US Federal Reserve] in the second half of the year, and we expect some reduction of the balance sheet,” Capital Economics analyst Simona Gambarini said.
“At the same time, in the UK and Europe, although policy will remain loose for some time, it will start to turn the other way,” she added. “So all in all, it doesn’t bode so well for gold prices.”
But according to UBS, if the US economic slowdown seen at the start of 2017 is not as temporary as the Fed believes, or if global growth slows, policymakers will have to review their tightening path. “We like the insurance qualities for gold just from an unknown perspective at these sorts of levels,” Gordon explained.
The gold price was trading at $1,223 on Tuesday (July 4), after rallying somewhat from an eight-week low reached on Monday (July 3). Geopolitical worries turned investors to safe-haven assets, as North Korea announced the successful launch of an intercontinental ballistic missile that could reach Alaska. The announcement was made on North Korean state television on Tuesday afternoon in the early hours of Independence Day in the US.
“Although the current market anxiety and flight to safety has the ability to support gold, the sharp $23 depreciation observed on Monday will be difficult for bulls to claw back. Short term bears remain in control with gold at risk of depreciating further if the Greenback continues to stabilise,” said Lukman Otunuga, a research analyst at FXTM.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
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