UBS: Positioning Favorable For Gold; Market Needs Catalyst
(Kitco News) - Gold has a number of factors in its favor, including low bullish speculative positioning, but investors appear to be waiting for a fresh catalyst before buying some more, says Swiss bank UBS.
Spot gold has gained nearly $40 since the May 9 low, trading at $1,253 an ounce as of late morning, and UBS analysts said their conversations with market participants reveal a â€śrenewed friendlinessâ€ť toward the metal.
Supportive influences include a reassessment of the macroeconomic outlook, still-low U.S. interest rates, weakness in the U.S. dollar, pause in the stock-market rally and U.S. political turbulence.
â€śWe think that gold is slowly regaining interest, but hesitation lingers in terms of putting on more meaningful strategic positions for now,â€ť UBS said. â€śMarket participants are looking for more significant catalysts in order to strengthen their conviction, and many still â€¦ struggle jumping into gold in an environment where the Fed is hiking rates.â€ť
Still, goldâ€™s move back above the 100-day moving average is encouraging, UBS said. This average currently passes through $1,224.
â€śLean positioning in the market is currently an important supportive factor as well,â€ť UBS said. â€śGold net longs are currently at the lowest level in over two months, and this should limit any potential weakness heading into the FOMC and ECB meetings in June.â€ť
The gold net-long position of money managers fell 31% to 65,868 futures contracts, based on the most recent weekly Commodity Futures Trading Commission data through May 16. As a general rule, lower bullish positioning means diminished potential for selling in the form of long liquidation, plus there is room for fresh buying from traders whenever they want to re-enter the market.
â€śWe would view dips from here as opportunities to build gold positions, especially should macro views and the reflation theme continue to be reassessed,â€ť UBS said. â€śMore broadly, we continue to think that gold is underinvested relative to other asset classes.â€ť
Goldâ€™s risks are â€śskewed more to the upsideâ€ť ahead of a Federal Open Market Committee meeting in mid-June, since market participants probably have already factored in a rate hike into prices, UBS added.
â€śAn encouraging factor that has helped gold's recent recovery was the emergence of physical demand around the lows earlier this month,â€ť UBS said.
Trade data has shown healthy demand in China and India, the worldâ€™s two largest gold-buying nations, UBS reported. In particular, Indian demand around the Akshaya Tritiya festival was â€śrobust,â€ť the bank said.