UBS raises gold forecast to $1,800 as Fed "throws everything and the kitchen sink"

New York (Apr 13)  The firm has raised its gold forecast to $1,800 across its outlook horizon, up from $1,700 at the end of Q2 and the end of Q3, and up from $1,650 at the end of Q4; pointing to the Fed announcement last week as the main reason for the shift in outlook.

"For us, this is the Fed throwing everything and the kitchen sink into the economy. The two most important determinants of the gold price are real US interest rates and expectations for the purchasing power of the US dollar, both inverse relationships, and we reiterate our negative views on both at this point.

Led by Fed easing, we now expect real US interest rates to dip deeper into negative territory and perhaps even test the post-GFC lows. Also, the forces behind a potential debasement of the US dollar have intensified.

We stay long gold, a trade we initiated in mid-May 2019. Investors could also sell gold's downside price risks for a premium."

Adding that while the deflationary impact of the coronavirus crisis has been a headwind for gold, this trend should reverse in 2H 2020 as policy responses by governments and central banks gather further traction.

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