Gold prices have retraced most of their losses since the election, but strategists at UBS are now lowering their outlook on the precious metal.
Joni Teves, an analyst at UBS, lowered her gold price forecasts to an average of $1,300 a troy ounce this year, from their previous estimates of $1,350 and also knocked her projections for next year to an average of $1,325 a troy ounce, down sharply from $1,450 previously.
While she maintains her broadly positive narrative surrounding the precious metal, she cites three key reasons for re-calibrating her gold outlook.
Firstly, she argued that a pick-up in gold interest in the first quarter was slower than expected. While gold prices have recovered by about 9 per cent since the start of the year, most investors are interested in gold not as an investment in itself but rather as a portfolio diversifier.
“Conviction levels have remained low and investors continue to hesitate to take more meaningful positions despite an underlying positive bias, especially as gold hovers below key psychological and technical levels,” she said.
Secondly, expectations of a faster pace of monetary policy tightening by the Federal Reserve pose a downside risk for gold prices, though she attributes the pressure more to “sentiment” than how Fed policy itself could impact rates. “The risk for gold is that a more hawkish Fed than what is currently priced could amplify current [investor] reluctance to become more involved,” she added.
Finally, she notes that higher euro area yield curves, as economic data improves and political uncertainty clears could push global yields up and prove a drag on gold, which offers no yield and is less attractive to income hungry investors. She added:
Political uncertainty in Europe has been supportive for gold in our view in the sense that it adds to list of known unknowns that warrant a diversified portfolio and holding a tail-risk hedge like gold. Yet we think that outright gold buying as a way to hedge European risks specifically has been more limited. Instead, the impact has been more by way of keeping investors who are already long more resilient and others generally more reluctant to short gold, even tactically.