UBS Keeps 1-Month Gold Forecast At $1,250, Cuts 3-Month Call To $1,200

London (Sept 24)  Gold may experience a short-covering bounce in the near-term, prompting UBS to keep its one-month gold forecast at $1,250 an ounce, but with the expectations that rallies will be sold, the Swiss bank said Wednesday it is lowering its three-month forecast by $100, to $1,200.

“Expectations of a stronger U.S. dollar, increasing focus on Fed (Federal Reserve monetary policy) normalization and its exit path, the absence of inflation risks, as well as rising (U.S.) Treasury yields all conspire to drag gold lower,” said Edel Tully, strategist, and Joni Teves, analyst at UBS.

Tully and Teves said they don’t expect prices to collapse, listing several reasons they are not more bearish on gold short-term. First, they said the speculative long position in the Commodity Futures Trading Commission’s weekly commitment of traders report is light.

“Quite simply, the weak hands in gold are very limited in size and this gives gold a certain insulating factor,” they said.

Second, some physical buying is returning, particularly in China, but they added there’s not an urgent need to own physical metal and that more consistent buying needs to be seen to support prices.

Third, investor demand is low, and investors are trading their views on foreign exchange and fixed income directly in those markets, rather than gold. If investors were trading their views of a stronger dollar in the gold market, prices would be lower, they said.

Finally, Tully and Teves said while gold is adjusting to the normalization of interest rates, they don’t expect the Fed to start an aggressive rate-tightening phase.

Upside Potential Possible

Gold prices could rally if there is a correction in the U.S. stock market, as U.S. equities are near record highs. Additionally, they point out a Swiss gold referendum on Nov. 30, which in part calls for Switzerland to hold at least 20% of its assets in gold, could support prices. “If passed, and currently very few are talking about it outside of Switzerland, the SNB (Swiss National Bank) would need to buy 1,500 (metric tons) over a three-year period. (Fifteen hundred tons) equates to half of the world's annual production,” they said.

Source: KitcoNews