Investors should slash gold holdings if the price approaches $1,310 an ounce but buy more of the precious metal if prices tumble to $1,100, a UBS strategist advises.
“The high gold price is unsustainable, in our view, unless the U.S. enters a recession or the U.S. Federal Reserve completely reverses course on monetary policy,” Wayne Gordon, commodity & currency strategist at UBS Wealth Management, wrote for
CNBC.
Spot gold rose as far as $1,282.51 an ounce early Friday, its strongest since Feb. 3, 2015, and was little changed at $1,270.20. Bullion climbed 1.5 percent on Thursday, its biggest single-day gain in a week, and was on course for a second weekly rise. For the year, gold has added 20 percent. U.S. gold for April delivery eased 0.1 percent to $1,271 an ounce, after peaking at $1,287.80.
“While gold price should come under pressure again, we reiterate our view that the structural decline in gold prices is over. Negative real U.S. rates, newfound investment demand, and central bank purchases are supportive of gold at around $ 1,200 an ounce over six to 12 months, in our view,” he wrote.
“Nevertheless, unless you expect a U.S. recession and the Fed to reverse course completely or engage in another round of quantitative easing, gold's current price rally is likely near its peak,” he said.
Ric Spooner, chief market analyst at CMC Markets in Sydney, expects the precious metal to keep climbing. "Ultimately if this trend continues, we may well see ourselves up towards $1,400 in gold," he told
Reuters.
The relatively weak U.S. dollar, despite expectations that the Federal Reserve could raise interest rates this year, as well as concerns about a wobbly global economy should support gold prices going forward, said Spooner.
"Gold remains our preferred commodity/sector in view of increasing liquidity from global monetary easing," Argonaut Securities analyst Helen Lau wrote in a research note.
Meanwhile,
Nasdaq.com contributing writer Trevir Nath questions gold’s reputation as a safe-haven investment.
“All along, the main driver of gold prices has been supply and demand. If gold were to act as a safe haven, then value of the precious metal would be completely independent. However, since gold cannot be valued by traditional measures such as discounted cash flow, retail demand dictates its value on the open market,” Nath wrote. “Moreover, emerging markets still rely heavily on commodities, meaning gold is likely to be more volatile rather than safe,” he wrote.
Nath points out there are many new safe-haven investments.
“During this current market volatility, where gold has been stuck in a bear market, there are a number of new safe havens that investors can buy to help protect their portfolios. Bonds have typically been the first stop for investors when markets begin to tail off. With the proliferation of ETFs, investors are increasingly turning to bond ETFs for its low costs, tax efficiency and diversification,” he wrote.
“Meanwhile, Treasury Inflation Protected Securities (TIPS) protect investors from the negative effects of fluctuating prices. These can act as a dependable hedge and are well suited to bolster a retirement strategy.”
(Newsmax wire services contributed to this report).
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