UBS Upbeat On Gold But Trims 2017 Forecast To $1,300/Oz
(Kitco News) - Strategists with UBS have tempered their forecasts for gold prices but remain bullish, calling for an average price of $1,300 an ounce in 2017.
UBS says it has been bullish on gold for some time due to expectations for an environment of moderate interest rates, a weaker U.S. dollar against currencies of developed nations, and general macro
uncertainty that encourages diversification into the yellow metal.
“We think these factors remain supportive of higher gold prices,” said a research report Wednesday from strategists Joni Teves and Roque Montero. “Moreover, lean gold positioning suggests that there
should be ample room for gold allocations across a wider, more diverse set of investors to grow. But while our core view is unchanged, we think that market developments over the past several months do warrant some recalibration of our price expectations.”
Among the factors UBS cited for scaling back its price forecast some were a slower-than-expected pickup in gold interest during the first quarter, a faster pace of Federal Reserve tightening than previously expected, and potential for higher bond yields in the euro zone, especially as political uncertainty clears and data continue to improve.
The bank’s new 2017 forecast of $1,300 is down from $1,350 previously. UBS trimmed its 2018 outlook to an average of $1,325 from $1,450 previously.
UBS commented that moves in gold over the past 15 months have hinged on developments in the U.S.
“We continue to hold the view that the correction in gold, as optimism on the U.S. economy and fiscal hopes emerged after the U.S. elections, was overdone as the path of fiscal policy remains uncertain,” UBS said. “Downside risks to U.S. yields as a result of fiscal disappointment would be a bullish catalyst for gold, in our view.”
The bank says global physical demand for gold has been weak, which has been factored into the market. This could mean a potential upside surprise for gold, with UBS suggesting that demand may be better than the market seems to expect.
Strategists described sentiment toward gold as positive but suggested conviction and participation have been limited, with market expectations tending to anticipate a broad range although with an upside bias.
“Gold's resilience has been encouraging, and we think the relatively orderly uptrend thus far helps to strengthen underlying sentiment,” UBS said. “Nevertheless, we would expect that a more convincing break beyond $1,250/$1,260 is probably needed to encourage stronger participation. At the moment, while there is limited interest to put on sizeable short positions, there is also a lack of urgency to build longs as investors consider the potential for economic data to improve further – potentially fueled by U.S. fiscal policy – and rates to move sustainably higher, which would hurt gold.”