Gold has continued to hit record highs despite several headwinds and UBS expects the price to see a pullback in the near term and then rally to further new records later in the year.
The Swiss bank sees gold being supported by several trends.
These include the US Federal Reserve “appearing on track” to cut interest rates, support for gold from central banks and investors buying gold, and heightened geopolitical risk.
“We remain positive on the price of gold for 2024, and continue to recommend it as a portfolio hedge,” said UBS chief investment officer Mark Haefele.
“We expect gold to trend higher to US$2,250/oz, but would wait for price setbacks to gain exposure, even if these turn out to be modest and brief.”
Haefele noted that global central banks purchased more than 1,000 metric tons of gold in each of the last two years, the highest levels since the 1960s.
Demand from investors in China has also been robust, he said, “possibly reflecting caution over the outlook for the equity market and property prices”.
In addition, the UBS wealth management team expect a return in ETF buying by investors looking toward rate cuts from the Fed.
On geopolitical risk, Haefele pointed to the US election campaign ramping up, which will make political risk a greater focus for investors.
“The race for the White House has the potential to aggravate tensions between the US and China,” he said, as well as mentioning the wars in Ukraine and Palestine, with attacks on Red Sea shipping lanes continuing.
UBS also flagged gold as a “good portfolio hedge against risk spikes”, while also expressing a liking for “select” gold miners.
Haefele noted that given many gold miners have lagged gold’s rally, they “may offer appealing relative value versus the physical metal, and have the potential to generate income for investors in ways that gold cannot”.
Source: Proactiveinvestors
