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Central bank purchases, light investor allocations, and geopolitical risks mean gold prices can fly higher still – UBS’ Joni Teves
Despite gold prices cresting close to year-end targets months ahead of schedule, the yellow metal is still supported by strong tailwinds and investor allocations remain relatively light, so the risks remain skewed to the upside, according to Joni Teves, Precious Metals Strategist at UBS.
In a Monday interview, Teves was asked what the banking giant sees in gold’s future after breaking above $2,700 per ounce last week and continuing to set new all-time highs in this week’s trading.
“We remain bullish on gold here,” she said. “We think the outlook is quite positive heading into next year. Easing by the Fed continues to be supportive for gold, and fundamentals continue to be positive as well. We expect central bank buying to continue, and physical demand we think will remain resilient even as prices continue to rally.”
UBS also believes investors still have plenty of room to build gold positions. “Generally, we think the market is still under-invested in gold, and therefore there's room for more allocations to be built up,” she added.
Teves was then asked when UBS expects to see the spot price break above $2,800 or even $2,900 per ounce.
“We have a year-end target of $2,800 for this year, but given the price action over the past week, the risks are building to the upside there,” she told CNBC Asia. “We do have a $3,000 target for next year. I think with a lot of uncertainty between now and the US Presidential elections, and given persistent geopolitical risks, we could see choppy price action over the next few weeks, but we think the skew is still to the upside for gold prices.”
Teves was also asked about the recent Financial Times article by Mohamed El-Erian, the former CEO of Pimco and one of the most respected voices in international finance, where he pointed to the ongoing decoupling of gold prices from their traditional drivers and correlated assets.
“There's definitely been periods of breakdown with that traditional relationship between gold and real rates, and to an extent the dollar as well,” she said. “I think that's because of gold-specific drivers. Firstly, central bank buying has been underpinning the gold market over the last couple of years as purchasers have stepped up following the sanctions on the Russian Central Bank. Also, physical demand, particularly at the beginning of the year, was very, very strong, and that underpinned the market as well.”
On the question of whether it was advisable to hold physical gold at these record high prices, or perhaps to take stakes in mining company equities, Teves said the decision is dependent on the reasons for investing and the individual risk profile.
“The choice of exposure really depends on an investor's risk appetite as well as mandate, so it depends on the type of investor,” she said. “Some investors, especially [those] that are concerned about credit risks, tend to hold physical gold, whereas those who are looking for more leverage can tend to look at equities, and other precious metals actually, such as silver, that also provide opportunity for more leverage to gold's price action.”
Gold prices continued to trend higher during Tuesday’s trading session, hitting a new all-time high of $2,748.94 just before the North American equity close. Spot gold last traded at $2,746.99 per ounce for a gain of exactly 1.00% on the daily chart.
Source: https://www.kitco.com/