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UBS Sees Higher Average Gold Prices in 2012

Release Date: 
Thursday, September 8, 2011

UBS increased its forecast for gold in 2012, saying that the metal could average $2,075 per ounce next year.

"The maintenance of U.S. rates close to zero means that gold is not in competition with assets that offer yield," UBS said. "Economic growth expectations globally are declining, high debt burdens in Europe will continue to hamper growth, and the risk of a U.S. recession is rising. All of these factors are individually positive for gold. Taken together, they are a potentially explosive cocktail."

The metal will be "increasingly used as the line of defense against additional negative market outcomes," UBS said. "With the pool of competing asset alternatives sparse, 'new' money will likely flow into the gold market over the months ahead and into 2012, and this should have significant price implications."

The analysts added, "much rests on policymakers' actions, in particular whether they will act proactively and whether such action will in fact have a positive impact on growth."

Analyst Dan Smith at Standard Chartered Plc in London also commented on the positive environment for gold. "We’re heading into a good period for seasonal demand and people are taking the opportunity to pick up gold on these dips," he noted. "The main trend is that things will remain poor from a macro perspective and that will support gold."

Gold moved higher on news from the European Central Bank that it would leave euro zone interest rates on hold, pushing the euro lower versus other currencies. The bank was also expected to signal that it will change the course of monetary policy and leave interest rates unchanged at 1.5 percent for an extended period, with the deterioration in the euro zone debt crisis as the reason for stopping the tightening cycle.

In the U.S., President Obama is proposing a jobs package worth more than $300 billion on Thursday after data showed no new jobs were added to the economy in August. Citigroup analyst David Thurtell was not overly optimistic about the potential impact of the plan. "All his package may do is lessen the fallout of recent knocks to confidence from the euro zone sovereign debt crisis and U.S. ratings downgrade," he said.

Federal Reserve Bank of Chicago President Charles Evans said that the U.S. central bank should move "aggressively" to reduce unemployment and "seriously consider" further stimulus measures.

(Sources: "PRECIOUS-Gold rebounds 1 pct as price slide tempts buyers," Reuters, September 8, 2011; "PRECIOUS-Gold rebounds more than 1 pct ahead of Obama speech," Reuters, September 8, 2011; "Gold rises 2 pct after ECB leaves rates unchanged," Reuters, September 8, 2011; "Gold Rises as Two-Day Decline From Record Price Spurs Investment Demand," Bloomberg, September 7, 2011; "UBS Lifts 2012 Gold-Price Outlook by 50% to $2,075 on ‘Explosive Cocktail’," Bloomberg, September 7, 2011;)

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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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