“Gold Has Entered A New Phase” Says UBS

With gold prices having risen by 24% in dollar terms already this year, UBS analyst Joni Teves declared in a note to clients yesterday that “gold has entered a new phase”.

Here’s the key reasoning behind that forecast, from UBS’ Global Precious Metals Comment note according to Business Insider today:

Key drivers include: 1) low/negative real rates, 2) the view that the dollar has peaked against DM currencies, and 3) lingering macro risks. We expect the next leg to be driven by an extension of the trend of strategic portfolio allocation into gold from a diverse set of investors. This trend should now deepen, attracting more participants and encouraging those who have been hesitating to get more involved. Relatively orderly retracements, which have typically been shallow and brief, indicates strong buying interest. This suggests that gold’s floor is likely higher now given an even stronger fundamental argument for holding gold.

Teves continues:

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. These factors justify strategic gold allocations across different types of investors and we expect this trend to continue.