UBS Global Wealth Management strategist Sagar Khandelwal recently stated that increasing political and trade-related uncertainties are driving the recent rise in gold prices, and that declining real interest rates, a weaker dollar, rising government debt, and geopolitical turmoil could push gold prices to $4,700 per ounce by the first quarter of next year, with mining stocks expected to perform even better .
“Gold has risen more than 60% this year, outperforming all major asset classes, with the US government shutdown and renewed trade tensions injecting new momentum into gold trading,” he wrote. “While the scale and speed of the gold price rebound may mean that volatility could intensify from now on, we still believe that gold is an important part of a resilient investment strategy.”
Khandelwal warned that as the Federal Reserve cuts interest rates amid persistently high inflation, real interest rates in the United States could very well fall into negative territory.
“We believe this will further weaken the appeal of the dollar, thereby driving investment flows into gold,” he said. “In fact, according to data from the World Gold Council, global gold ETFs recorded their highest monthly inflows in September ($17 billion), making the $26 billion in inflows in the three months to September (third quarter) the strongest quarter on record.”
UBS believes that demand for gold investment may increase further .
“With central bank purchases still rising, we believe global gold demand should reach around 4,850 tons this year, the highest level since 2011,” Khandelwal wrote. “If private investors start diversifying their holdings of U.S. Treasuries into gold—a trend among central banks—spot prices could be pushed even higher.”
“Finally, given the continued economic, geopolitical, and policy uncertainties, we expect funds to continue flowing into gold, which could spur prices to rise further to $4,700 per ounce,” he said. “Given the low correlation between gold and stocks and bonds, especially during periods of market stress, we tend to keep gold allocations in the mid-single digits within a diversified portfolio.”
Khandelwal also suggested that investors consider allocating to select gold mining companies, as these companies' cash flow growth is likely to outpace the rise in gold prices over the next six months.
Gold resumed its upward trend on Monday after a pullback from Friday's highs, with spot gold hitting a new record high, briefly rising above $4,381 . In early Asian trading on Tuesday, spot gold fluctuated at high levels, currently trading around $4,360 per ounce.
(Article source: CLS)
