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Gold price to take on $2,200 in 11 months as central banks keep buying gold, says UBS

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(Kitco News) Gold is looking to move to $2,100 into the year-end and then advance to $2,200 by the end of March 2024, according to the Swiss-based UBS, which sees central bank buying becoming a top-tier driver.

The precious metal is among the best-performing assets in 2023, up 9.2% year-to-date as prices trade around $2,000 an ounce. And the rally is far from over, UBS said in a note Wednesday.

"A key feature of the rally has been solid central bank demand and financial investors returning to the market, with exchange-traded funds (ETFs) plus futures and options markets all recording the strongest demand in over a year. March was the first month of net inflows from ETFs in almost a year," UBS said.

UBS sees solid central bank gold buying activity lasting for another year. And while this kind of demand does not usually influence prices directly, the record levels being witnessed lately are leaving an undeniable impact.

"Traditionally, central bank demand is considered a second-order price driver, as buying activity rarely meets the same scale of flows related to ETFs, hedge funds, and other investment demand. But this all changed in 2022. Central bank buying was strong last year—the highest level of annual demand on record dating back to 1950," the note said. "Central banks' share of total demand was 23% in 2022, versus 8–14% between 2011 and 2019."

UBS cited the HSBC Reserve Management Trends Survey that polled 83 central banks, revealing that more than two-thirds of respondents thought their peers would increase their gold holdings in 2023. The two main reasons for higher demand were geopolitical and high inflation risks.

"Looking at 2023 so far, official purchases have totaled more than 120 metric tons, which, at this pace, would see annual purchases total around 750 metric tons. While this represents a slowdown in the pace of buying, this level, if reached, would be the second highest in history after last year's record of 1,136 metric tons," the note said.

Demand could slow due to rising gold prices, but market-related volatility and the de-dollarization trend will remain supportive drivers pushing central banks to buy more gold.

After already climbing around $150 in the first four months of the year, gold could have another $100 to go before year end, UBS said.

"We prefer gold as a buy in a portfolio context and forecast prices to touch USD 2,100/oz by end-December and USD2,200/oz by end-March 2024," the note said.

At the time of writing, June Comex gold futures were trading at $1,996.90, up 0.05% on the day.

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