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UBS Revises Gold Forecast Higher

Release Date: 
Tuesday, July 31, 2012

Gold prices rose on a stronger euro ahead of announcements from key Fed and European Central Bank (ECB) meetings this week. While both central banks are discussing potential monetary stimulus, statements from the ECB President last week vowing to protect the euro were particularly strong. Gold was $1.10 higher at 7:36 a.m. Pacific Time on the New York Spot Market, trading at $1,624.00 per ounce. Spot silver was unchanged, trading at $28.28 per ounce.  (Click here for the most current spot prices.)

UBS increased its one-month gold forecast to $1,700 per ounce from $1,550, citing expectations that the Fed's meeting in August could be significant for policy expectations ahead of the September Fed meeting. The Swiss bank also raised its three-month forecast to $1,750 per ounce from $1,600.  According to UBS, the three-month revision takes into account the U.S. elections in November and the looming U.S. 'fiscal cliff', when the expiration of tax cuts and required spending reductions become effective.

The investor community is starting to pay more attention to gold with sentiment in the U.S. "the friendliest we'd seen since the metal's sizeable pullback in late February," said Edel Tully, the precious metals strategist at UBS. "We've long held the view that the gold market is unprepared for a rally, both from a positioning point of view and from a sentiment perspective. And when the rally comes, it's likely to be fast and furious," Tully said.

HSBC commodities analysts wrote in a Monday research note that, "should the Fed loosen policy, gold could rise on a short-covering rally; conversely, prices could fall should the Fed elect not to ease, but we believe losses would be short-lived." Additionally, "we also detect a gradual shift in investor sentiment in favor of gold. This may be due in part to the approaching U.S. elections and heightened economic uncertainty surrounding U.S. fiscal policy."

Two of the three analysts who correctly predicted gold's second quarter price consolidation are now bullish on gold. Eugen Weinberg of Commerzbank AG and Nick Trevethan at ANZ Banking Group Ltd. predict a new record gold price within a year. "The low interest-rate regime, central-bank demand and further stimulus should create a fertile ground for gold bulls," said ANZ's Trevethan. According to Weinberg, who heads commodity research at UBS in Frankfurt, "we will see strong hands entering the market via more central-bank buying, physically-backed exchange-traded products and purchases of bars" of bullion.

Gold may average $1,669 this quarter, up from $1,612 in the prior quarter, according to the median of 20 analyst estimates compiled by Bloomberg.

 (Sources:  "PRECIOUS-Gold firms as euro edges up ahead of ECB meet," Reuters, July 31, 2012; "Gold ticks higher ahead of Fed decision," MarketWatch, July 31, 2012; "Most-Accurate Gold Forecasters Splitting After Rout: Commodities," Bloomberg, July 31, 2012; "Sentiment Turns Positive For Gold, But Buyers Still Hesitant – UBS," Commodity Online, July 30, 2012)

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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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