Gold Is More Compelling Than Ever – UBS

Release Date: 
Friday, July 8, 2016

Gold prices retraced some of its gains on Friday on positive labor news but remained in positive territory for the week.

“Gold prices slid lower on Friday, as investors awaited the highly-anticipated U.S. employment report due later in the day, but the precious metal remained close to Wednesday’s two-year peak as concerns over the global impact of the Brexit vote continued to dampen sentiment…

“Gold has been well supported in recent weeks as expectations mounted that central banks around the world will step up monetary stimulus to counteract the negative economic shock from the Brexit vote….” (“Gold slides lower with U.S. nonfarm payrolls on tap,”, 7/8/16.)

Gold ended the week up $23.50, closing at $1,366.40. Silver prices closed at $20.35, up $0.49.

Gold Is More Compelling Than Ever – UBS
Analysts at the international financial services bank UBS advised investors that gold has entered a new bull market with prices hitting $1400 by the end of this year.

“UBS analysts are making a bullish call on gold, saying that the yellow metal will march to $1,400/oz during the second half of the year. ‘Gold has likely entered the early stages of the next bull-run,’ UBS’s Joni Teves wrote. ‘Key drivers include: 1) low/negative real rates, 2) the view that the dollar has peaked against [developed market] currencies, and 3) lingering macro risks.’ Teves believes that the macro story for gold today is ‘more compelling than ever…’

 “We have been flagging the upside risks to our views for some time now on the back of stronger-than-expected investor sentiment and flows,” Teves said. “The extent and breadth of the interest has meant that gold positions have more endurance and stability. The UK’s vote to leave the EU further underpins gold’s macro narrative, reinforcing the themes of further dovish shifts in monetary policies, consequently lower yields, and heightened uncertainty. We continue to expect US real rates to fall from here and ultimately for equilibrium real rates to settle lower and have limited upside…’

“UBS is not alone in making a bullish call on gold. ‘We forecast the gold price to increase through 2016 and believe the $1,500/oz mark could be tested by late 2016 or early 2017 as the macro implications of the Brexit vote are clarified, and the 8 November US election weighs on sentiment,’ Credit Suisse’s Michael Slifirski said last Thursday… ‘The UK’s vote to leave the EU gave the gold rally another push, reflecting gold’s perceived status as a ‘safe-haven’ investment,’ HSBC’s James Steel said on Tuesday….” (“UBS: Gold has never been more compelling,” Yahoo! Finance, 7/6/16.)

Market Pro Sees New Record Gold Prices– CNBC
Speaking to CNBC, Swiss Asia Capital's Singapore managing director and chief investment officer Juerg Kiener explained why he forecasts record gold prices within the next eighteen months.

“Gold prices may hit all-time highs in the next 18 months amid low to negative global bond yields, said a fund manager on Monday, joining a chorus of bullish calls on the safe haven commodity.

“Despite being a non-interest bearing asset with holding costs, gold was attractive in the current climate where there was little trust in the establishment and its policies as demonstrated by the June 23 referendum in the U.K. when voters chose to leave the European Union, said Swiss Asia Capital's Singapore managing director and chief investment officer, Juerg Kiener…

“’This fall-off in trust is resulting in people looking at different ways to invest, particularly in an environment when the government controls the whole fixed income market, which is negative. At least (in gold), you don't have negative yields, there is no new supply...and falling production,’ he told CNBC's ‘Squawk Box.’ …

“’The more important issue is that you can't print gold. You've got falling production, falling inventory and a demand cycle which is picking up,’ he said….” (Gold prices will hit record high in next 18 months as global bond yields crash: Pro,” CNBC, 7/3/16.)

Central Bank Policies Will Cause Gold Prices to Triple – CLSA Equity Strategist
The equity strategist for Asia’s most independent research brokerage, CLSA, believes that unconventional monetary policies from central banks will cause gold prices to rise to $4,200 per ounce.

“Here's a bold call. After the post-Brexit, face-ripping comeback in gold prices, Christopher Wood at CLSA believes that the precious metal is set up to more than triple in price. Since the start of 2016, gold bullion has gained 24.6%, said Wood, who has been high on gold for some time now, and the risks to the global economy and safe-haven nature of the commodity will make it the go-to investment.

“’A long-term bullish view is maintained on gold bullion, with the ultimate price target now set at $4,200 an ounce,’ Wood wrote in a note to clients on Tuesday.

“What could possibly make gold go from roughly $1,350 an ounce now to a historically high price? Central banks, according to Wood. Here's his breakdown … ‘This is because the view here remains that central banks, including most importantly the Federal Reserve, will not be able to exit from unconventional monetary policy in a benign manner and will remain committed to ongoing balance-sheet expansion in one form or another. Such policies will ultimately discredit central banks pursuing unconventional monetary policy, threatening the stability and indeed integrity of the current fiat-paper-money system…’

“This may take some time, however, so investors should be patient with the trade. ‘It should also again be emphasized that the investment in gold is viewed as insurance, not as a short-term trade,’ Wood wrote….” (“The collapse of the monetary system as we know it will push gold to $4,200,” Business Insider, 7/5/16.)

Gold to $1500; Silver to $30 - Bank of America Merrill Lynch
The banking giant Bank of America Merrill Lynch released a report targeting gold to rise to $1500 per ounce and silver to “overshoot” to $30 per ounce.

“Just as gold prices hold onto gains, bullish sentiment for the metal remains intact with another big bank upping its price forecast by a whopping 10%. On Friday, Bank of America Merrill Lynch released a report not only calling for gold prices to hit $1,500 an ounce but for silver to “overshoot” to $30…

“’ We reinforce our bullish view particularly on gold and silver, which should continue to perform well given subdued global growth and risks that this will skew the public debate towards wealth generation/ distribution, populism and migration, with all the negative consequences this may have on effective economic policy making,” the report said. ‘The world has been walking from crisis to crisis and we see risks that this may not change,’ the analysts added….” (“Gold Going To $1,500, Silver To $30, Says BoAML,” Kitco News, 7/8/16.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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