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UBS Still Looking For $1,300/Oz Gold In 2017

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(Kitco News) - UBS has maintained its bullish outlook for gold, citing “benign” interest rates, expectations for a softer U.S. dollar and a pickup in physical demand.

UBS maintained its forecast for an average $1,300-an-ounce gold price for the year, also listing a three-month target of $1,300. Spot metal was at $1,222.90 as of 8:54 a.m. EDT.

The bank said it now sees “greater downside risks” for gold than before, but nevertheless remains upbeat, calling for support to come from physical demand in the months ahead.

“More broadly, we continue to anchor our core view on macro factors – scope for lower real rates from current levels and, more broadly, a benign rates environment should be supportive for gold,” said the report, released Thursday and written by strategist Joni Teves. “A soft dollar should also be conducive for higher gold prices.

“While it's hard to anticipate global political risks, lingering uncertainty strengthens the argument for including gold in a diversified portfolio. Macro outlooks have shifted from where they started at the beginning of the year, yet gold has lagged the move amid relatively limited participation overall. As such, there should be some catching up to do and lean positioning suggests that the adjustment could be swift and sizeable.”

Meanwhile, UBS said it was “marginally” downgrading its outlook for silver prices, although the forecast is above current prices. UBS trimmed its 2017 average price forecast to $18 from $18.50 and adjusted its three-month target to $17.80 from $18.50 previously. The metal was at $15.87 early Friday.

“Silver continues to follow gold price action,” UBS said. “While there's scope for silver to outperform during periods of growth/risk optimism, this is unlikely to be sustained as silver interest thus far tends to be short term in nature. Participants are attracted to silver's volatility and take advantage of trading opportunities rather than put on strategic positions.”

UBS said it cut the platinum forecast due to the metal’s weakness in the first half and because of weaker investor sentiment than anticipated. The bank trimmed its 2017 average platinum-price forecast to $980 from $1,060 previously, although this was up from a Friday-morning price around $911. The main industrial use for platinum and sister metal palladium is automotive catalytic converters.

“While we think that the impact of auto-sector trends on the platinum demand should be more gradual than what this year's price action may suggest, the impact on sentiment has been much more dramatic,” the bank said. “In spite of this, we maintain a rising price profile, continuing to expect support to come from gold. In the near term, elevated short positioning makes the market vulnerable to upside risks, potentially helping the market recover towards our short-term target around $980.”

Meanwhile, the bank upgraded its 2017 average forecast for palladium to $820 from $800, citing the strong performance in the first half that came on favorable supply-demand fundamentals. UBS’ short-term target was listed as $850, as analysts called for some sideways consolidation after recently softer U.S. auto-sales data. Spot palladium was at $831.30 as of 8:55 a.m. EDT.

“Palladium's fundamentals are compelling overall and this should keep the market well supported, especially given strengthening investor sentiment and increasing participation,” the bank said. “The path is unlikely to be straight forward given challenging liquidity conditions and potential for positioning to get stretched in the near term, but the broad uptrend should remain intact.”

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