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.”
Gold is currently trading at $1,375/oz, up $16 from Tuesday.
Gold is arguably the most controversial widely-held asset in the global financial markets.
Financial professionals are largely split on gold. On one hand, you have the bulls who praise it as a store of value, a safe-haven, or a “currency” that cannot be manipulated by the whims of policymakers.
On the other hand you have the bears who argue that the bull’s case is complete nonsense. Indeed, gold has been anything but a stable store of value in recent years. Billionaire Warren Buffett is one of the more vocal skeptics of gold, arguing that it’s an unproductive asset that will never pay interest or dividends.
But even Buffett acknowledges that gold is a play on fear and uncertainty. And with the UK unexpectedly voting to leave the European Union and the US presidential election just five months away, uncertainty it expectedly high. And all of this has central bankers around the world keeping monetary policy easy, which has a tendency to devalue currencies causing gold prices to rise.
“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. “We see gold increasing through 2016, averaging $1,475/oz in 4Q-16, $1,500/oz in 1Q-17 and an avg. $1,450/oz in 2017.”
“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. “Unlike some other perceived ‘safe- haven’ destinations, like the CHF and JPY, gold is not subject to intervention risk.”
Steel raised his 2016 price target to $1,275 and 2017 target to $1,310, up from $1,205 and 1,300, respectively.
Sam Ro is managing editor at Yahoo Finance.