UBS and Citi differ on gold price outlook

Alexander Bueso | Sharecast | 10 Jan, 2017 17:00 | | |

Gold bars

Markets will need more evidence that the US economy is about to accelerate before pushing bond yields and the dollar higher, which should allow the price of gold to continue trending higher, UBS said.

"A lot of optimism with regards to the prospect of fiscal policy boosting US growth looks already priced-in," UBS analyst Joni Teves said in a research report sent to clients on 9 January.

Teves also pointed to the recent fall in net long positions despite investors consistently adding to gross short positions since mid November

"This raises the risk of short-covering up ahead and could make the market relatively more vulnerable to upside catalysts in the near-term," he added.

The annual rebalancing of commodity indices over the present week was also expected to offer some marginal support.

Analysts at Citi on the other hand believed the price of the yellow metal was not as weak as it should be.

"The yellow metal is perhaps lagging the USD rally/higher rates somewhat, unlike 2014/2015," Jeremy Hale, Graham S Bishop, Maximilian Moldaschl and Amir Amin said in a report.

"A simple market based regression model using these drivers suggest significant downside to gold ahead. And interestingly, dissecting these drivers shows that whilst USD and 1y1y rates have contributed negatively to fair value estimates, there is a large residual/unknown driver pulling the other way.

"Perhaps investors are holding the yellow metal as an uncertainty hedge (can Trump deliver, upcoming politics, China, Brexit etc.) or maybe as an inflation hedge? Thoughts welcome."

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