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The Price Of Gold Listless, But Should Benefit From Growing Trade Tensions – UBS

Kitco News

(Kitco News) - Gold investors appear to be suffering a crisis of faith as safe-haven demand for the precious metal has been listless in recent weeks.

Despite the yellow metal's recent disappointing performance, UBS precious metals strategist Joni Teves is maintaining her current outlook for the gold market to average the year around $1,325 an ounce.

Her comments come as gold sees a modest boost while weak global economic data and rising trade tensions weigh on equity markets. June gold futures last traded at $1,285.30 an ounce, up 0.87% on the day. Meanwhile, the Dow Jones Industrial Average last traded at 25,388 points, down 384 points or 1.5% on the day.

Although escalating trade tensions between the U.S. and China is dragging investor sentiment lower, Teves noted in a report Wednesday that the yellow metal is not significantly benefiting. She noted that economic conditions haven't deteriorated enough to cause panic among equity investors.

"Our economists note that higher tariffs would result in a 45bp drag to global growth. However, at the moment, these concerns do not seem urgent enough to warrant a rush towards building positions,” she said. "The data has been tracking positively of late, offering some reassurance in the face of renewed trade tensions. Very early readings of global growth indicators suggest a run-rate of 3% in Q2. Lower rates are also acting as a cushion here alongside a more dovish policy stance among central banks. All these factors appear to be containing the extent of a risk-off move, and therefore also keeping gold interest as a safe haven subdued."

Although the gold market could continue to suffer from a lack of interest in the short term, Teves isn't ready to completely give up on the yellow metal.
Resistant strength in the U.S. dollar, benefiting from the ongoing trade wars, continues to be a major headwind for gold.
However, Teves said that this strength is not sustainable in the long term.

"The dollar's upside potential should be limited, given expensive valuations and crowded positioning," she said. "Lower real rates and equity weakness on the back of trade-related growth concerns should be supportive for gold."

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