Gold still has room to increase according to UBS's scenario
World gold prices continued to rise in the session of August 21 (recorded at 11:50 NY Time). Spot gold at one point touched 4,604.18 USD/ounce, the highest level since May 15.
Since the beginning of the week, the precious metal has increased by about 5%, heading towards its third consecutive week of increase. Gold prices also surpassed the 200-day moving average of around 4,513 USD/ounce, attracting more attention from traders.
In a new report released on August 21, the Chief Investment Office (CIO) of UBS said gold increased by more than 4.3% in the week and about 13% in the month at the time the report was released.
Although the price has increased sharply, UBS believes that gold still has room to rise and forecasts that this precious metal may reach 5,400 USD/ounce in the next 12 months.
If taking the level of 4,590.51 USD/ounce recorded by Reuters in the session of August 21 as a reference level, UBS's target of 5,400 USD/ounce is about 17.6% higher.
According to UBS, one of the factors continuing to support gold is pressure from public debt and uncertainties surrounding how governments finance the growing debt volume.
Long-term US government bond yields remain high. After falling sharply due to the US Treasury Department's move to increase the scale of long-term bond repurchases, 30-year yields returned to around 5.25%.
Meanwhile, the Dollar Index fell nearly 1% in the week. UBS said that more and more investors are looking for alternatives to both long-term bond risks and the level of exposure to the USD.
The USD is trading near its lowest level since mid-May Concerns about the impact of bond market support measures on confidence in the greenback are one of the factors supporting gold.
What does UBS say about gold distribution?
On the same day, August 21, UBS Wealth Management released another report on commodity prospects. A noteworthy point is that this document not only provides a price assessment but also directly mentions how investors can access this group of assets.
UBS believes that investors should maintain a diversified level of exposure between precious metals, energy, industrial metals and agricultural products, instead of focusing on just one type of commodity. The organization also favors proactive management in the context that commodity groups can continuously change leadership positions.
Regarding gold, UBS continues to consider precious metals as a tool for strategic diversification and maintains a positive outlook on gold prices in the next 12 months.
However, the report also provides a noteworthy detail for investors who have made large profits after the recent increase. UBS believes that higher prices may create an opportunity to partially rebalance the level of exposure to other commodity groups.
Thus, UBS's latest orientation is not simply to continue to increase gold regardless of price levels. This organization both maintains positive prospects for precious metals, and emphasizes the diversification and portfolio rebalancing factor for cases that have accumulated significant increases.
On the market side, Goldman Sachs said that demand for gold options has increased sharply as investors seek defense tools against macroeconomic policy incertitudes. This demand could amplify both upward and downward fluctuations in gold prices.
*Note: The above price targets and allocated viewpoints are UBS's assessment, not commitments to the future developments of gold prices and not general investment recommendations applicable to all investors.
