Tags: Schnider | gold | demand | double digit

UBS' Schnider: Look for Double-Digit Declines in Gold Prices

By    |   Thursday, 27 February 2014 07:47 AM

Don't read too much into strength in the gold market, as the metal is headed for double digit declines, projects Dominic Schnider, head of non-traditional asset classes at UBS.

Gold futures climbed this week to the highest level in almost 17 weeks.

"Some of the buying we have seen recently is not really driven by fundamentals, but is more momentum driven. That should run out of steam — so we'll see double-digit declines on the precious metals this year," Schnider tells CNBC.

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Schnider attributes most of the recent demand to buying in the futures market, but he expects strength in U.S. bonds to cause a reversal of that buying and to trigger outflows from exchange-traded funds.

"Think about it, we are in a risk on environment probably going into the second quarter of this year, rates [on 10-year Treasurys] are going to rise faster than most people expect and the dollar's going to strengthen [and] we are looking at an environment where equities continue to do well," Schnider explains.

His 12-month view of gold is that it will likely fall to about $1,050. Silver will follow suit, he projects, falling from recent levels around $21.80 to about $18 by the end of the year.

Gold prices plunged 28 percent in 2013, wiping out substantial wealth and confidence in the metal. However, some analysts are optimistic about its performance this year.

"People are concerned about U.S. economic growth, and that's why many people have turned bullish," Adam Klopfenstein, senior market strategist at Chicago's Archer Financial Services, tells Bloomberg.

"Gold is also finding some support from the ongoing political turmoil" in Ukraine, he adds.

Other analysts cite bullish factors such as heavy buying in China and rising jewelry demand.

"We do believe the underlying physical market is making adjustments as there has been a moderation in primary production and a collapse in recycling," David Lennox, resources analyst at Sydney-based trading firm Fat Prophets, tells CNBC.

Lennox foresees gold forging higher and ending the year between $1,350 and $1,400 an ounce.

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Don't read too much into strength in the gold market, as the metal is headed for double digit declines, projects Dominic Schnider, head of non-traditional asset classes at UBS.
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2014-47-27
Thursday, 27 February 2014 07:47 AM
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