Investors are currently fueling a gold rally, with prices breaking the $1,900 threshold. Even as more investors begin seeking safe-haven investments, UBS Investment Bank sees a short-lived gold rally. Consequently, it predicted that gold prices will go down later this year.
UBS Investment Bank Downplays Gold Rally, Sees Lower Prices By End of the Year
According to UBS Investment Bank’s Joni Teves, the recent gold rally that saw prices break the $1,900 level will be short-lived.
Eventually, gold will fall back to $1,600 per ounce by the end of 2022. That’s because she expects the gold market to revert back to focusing on macro drivers.
This includes real rates, US Federal Reserve policy, and the total economic growth outlook. “An environment where real rates are rising and the Fed is tightening policy does provide a negative backdrop for gold. We do think that the strength should ultimately … be short-lived,” she said.
As the first quarter ends, analysts expect the Federal Reserve to raise interest rates during its March meeting.
The Fed aims to cool down inflationary pressures with the rate hike. Teves believes that this will likely put pressure on precious metals and dampen the gold rally.
Expectations for higher interest rates tend to push yields of assets such as US Treasurys higher. Consequently, this can potentially lower the attractiveness of a non-yielding asset such as gold.
Gold Still Has Upside Even If Fed Raises Rates
However, Teves continues to acknowledge gold’s upside. Even as real rates move higher, they are likely to remain in negative territory.
Holding on or allocating gold remains an attractive prospect in this situation. In addition, a possible economic slowdown can happen due to tightening policies.
In this case, some investors may decide to hold on to gold, which can spark another gold rally.
Currently, a gold rally is underway as investors began moving to safe-haven investments such as precious metals. This is the market’s reaction to global concerns such as the Russia-Ukraine standoff.
The tension is already making its presence felt in the markets. On Monday, stock futures went down while oil prices shot up.
Spot Gold Now At $1,908.13
Recently, gold closed at $1,908.13 per ounce, breaking the $1,900 barrier this year and hitting eight-month highs. Earlier this month, the metal traded at around $1,800 per ounce.
As gold is traditionally seen as a safe investment during uncertain times, many investors sparked a gold rally once news of heightened Ukraine-Russia tensions broke out.
Craig Erlam, the senior market analyst at OANDA, said that the Ukraine headlines helped buoy up gold prices. However, the situation remains volatile much like the Ukraine situation. “We are seeing some resistance around $1,900,” Erlam said. “But the way the situation is evolving, that may struggle to hold as the day progresses.”
Meanwhile, Independent analyst Ross Norman said that gold is currently holding up well. “The last time we moved up to these levels it ended up being a bull trap,” he said.
As a result, “the market came off very sharply. We've seen some good flows into the ETFs, which is encouraging.”
Watch the CNBC International TV video reporting that UBS thinks gold prices are likely to drop toward the end of 2022:
Do you have investments in gold right now? Are you planning on acquiring more, or are you planning to sell given the higher demand?
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