UBS Says Now Is the Best Time To Buy Gold

If there ever was the best time to buy gold, UBS says it’s now. Last August, gold prices hit the $2,000 an ounce barrier. Since then, it rose to its highest $2,089, then fell below $1,900. The price is below the 2011 high of $1,923 an ounce. It’s a down market at the moment. As of Sept 30, gold is trading at $1,891.60 per ounce. 

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Analysts find it unusual, as the current situation should've raised prices instead. The tech spat with China, lack of a new stimulus bill, and the continued Covid-19 outbreaks. These uncertainties should have made investors rush towards gold. But it didn’t.

UBS: Now Is The Time

UBS Wealth Management is now advising investors that this is the best time to buy gold. Kelvin Tay, UBS Global Wealth Management regional chief investment officer, thinks now is the time. Investors shouldn't look at the price correction in gold as the beginning of its decline. Instead, they should look at the current prices as a temporary correction.

Speaking in CNBC’s Squawk Box, he said: “We like gold because we think that gold is likely to actually hit about $2,000 per ounce by the end of the year.” He noted that gold can act as a “very good hedge” against upcoming risky events. These events include the U.S. election and the uncertainty of a post-pandemic crisis. As gold is selling $1,880 per ounce, this is a weakness that can serve as entry points for willing investors.

Tay also said that the US’s current low-interest rates make gold even more attractive. The Federal Reserve declared that interest rates will remain low for a time. This means the opportunity cost for holding the precious metal remains low as well. Mark Haefele, UBS chief investment officer, said that this would prop gold's rally.

Like gold, the stock market is experiencing a sell-off at present. Renewed fears against coronavirus and the uncertainty in the coming US elections emerged. As such, the dollar can get hit, and the price of gold can rise later this year.

Three Good Reasons

BusinessInsider, in a Sept 30 article, gave UBS’s three reasons why gold is an attractive purchase now.

First, a “supportive” Fed will continue to keep low rates as Congress is unable to issue a new stimulus bill. They will also likely increase their Treasury purchases and focus on long-range bonds. UBS said that this development could limit any technical rise in nominal rates.

The second reason is the US election frenzy. If the losing side would contest the results, this can lead to wild fluctuations in the US dollar. Investors will then run to safe-haven investments like the Swiss franc, the Japanese Yen, and gold. Besides, the US dollar’s longer-term trend is downward due to the Fed’s lower interest rates. With gold priced in US dollars, weaker dollars mean lower prices. 

Possible Lower Interest Rates

Finally, the global situation post-pandemic will lead to lower interest rates. Unlike in the US, the rest of the world will tolerate higher inflation levels. UBS sees gold, being an actual asset, becoming a hedge against inflation. The wealth management company concluded that it foresees gold to hit $2,000 at the end of 2020. It also does not discount the possibility of reaching $2,300 an ounce in a downside market.

Watch this to see why this trader is long on gold futures:

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Do you think that the volatility in the US will last that long? Will gold prices get back to $2,000 levels as investors move from the dollar to safe-haven instruments? Or do you think that the nightmare scenario is the worst case at best? Are peaceful elections (by world standards) and a coronavirus solution at hand by year-end? Let us know if you plan to buy gold, or if you prefer holding on to your dollars. Drop us a line at the comment section below.