UBS forecast a drop in gold by year end
(Kitco News) - Swiss investment bank UBS strategist Joni Teves predicts that recent strength in gold prices will be “short-lived.” Teves noted that the gold market is expected to revert back to focusing on macro drivers such as real rates, U.S. Federal Reserve policy as well as the growth outlook.
In an interview on CNBC Teves said the gold market is expected to revert back to focusing on macro drivers such as real rates, U.S. Federal Reserve policy as well as the growth outlook. In fact, UBS sees gold prices falling to $1,600 per ounce by the end of 2022.
Teves said “An environment where real rates are rising and the Fed is tightening policy does provide a negative backdrop for gold,” she added “We do think that the strength should ultimately … be short-lived.”
The Fed is expected to raise interest rates at its March meeting to try and cool inflationary pressures, and Teves said that’s likely to put pressure on gold. Expectations for higher interest rates tend to push yields of assets such as U.S. Treasurys higher, potentially lowering the attractiveness of a non-yielding asset such as gold.
Back to the interview Teves said “I think the key risk here is if we start to see reallocation into gold, with the expectation that although real rates are moving higher they are likely to remain in negative territory, and therefore an allocation to gold remains attractive,” the strategist said. Furthermore, allocations to gold could start to rebuild as investors grow more concerned about economic growth slowing down as the Fed tightens policy, she said.