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UBS: Positioning Favorable For Gold; Market Needs Catalyst

Kitco News

(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 “renewed friendliness” 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.

“We think that gold is slowly regaining interest, but hesitation lingers in terms of putting on more meaningful strategic positions for now,” UBS said. “Market participants are looking for more significant catalysts in order to strengthen their conviction, and many still … struggle jumping into gold in an environment where the Fed is hiking rates.”

Still, gold’s move back above the 100-day moving average is encouraging, UBS said. This average currently passes through $1,224.

“Lean positioning in the market is currently an important supportive factor as well,” UBS said. “Gold 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.”

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.

“We would view dips from here as opportunities to build gold positions, especially should macro views and the reflation theme continue to be reassessed,” UBS said. “More broadly, we continue to think that gold is underinvested relative to other asset classes.”

Gold’s risks are “skewed more to the upside” 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.

“An encouraging factor that has helped gold's recent recovery was the emergence of physical demand around the lows earlier this month,” UBS said.

Trade data has shown healthy demand in China and India, the world’s two largest gold-buying nations, UBS reported. In particular, Indian demand around the Akshaya Tritiya festival was “robust,” the bank said.


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