Global investment bank UBS has provided three reasons for investors to “buy gold now.” Expecting gold to break its all-time high later this year, the Switzerland-based investment banking giant has retained its “most-preferred rating” on gold.
UBS Sees 3 Key Reasons to Buy Gold Now
UBS, a global investment bank based in Switzerland, has presented three reasons to consider buying gold now. In a note titled “Three Reasons to Buy Gold Now,” published Thursday, by UBS Chief Investment Office, the firm’s strategists outlined their expectations that gold is poised to surpass its all-time high this year.
While acknowledging that the price of gold has retreated from its recent high, the strategists wrote:
The yellow metal remains 8.2% higher since the start of this year, and we think it’s likely to break its all-time high later this year with multiple mid- to longer-term drivers.
One key factor driving the UBS strategists’ bullish outlook on gold is their expectation that central banks’ demand for gold will “remain robust.” They explained that global central banks purchased a record amount of gold last year, marking the 13th consecutive year of net gold purchases and “the highest level of annual demand on record dating back to 1950.”
Citing the 1Q23 data from the World Gold Council indicating that “central banks are on track to buy around 700 metric tons of gold this year, much higher than the average since 2010 of below 500 metric tons,” the UBS strategists detailed:
We think this trend of central bank buying is likely to continue amid heightened geopolitical risks and elevated inflation. In fact, the U.S. decision to freeze Russian foreign exchange reserves in the aftermath of the war in Ukraine may have led to a long-term impact on the behavior of central banks.
The second factor that UBS expects to boost the price of gold concerns “Broad U.S. dollar weakness.” The strategists described: “The direction of a weakening dollar is clear, with the U.S. Fed having signaled a pause in its current tightening cycle after 500 basis points of rate hikes over the past 14 months. Other major central banks, meanwhile, remain on track to do more to fight inflation.” They affirmed:
We believe the reduction in U.S. yield carry will continue to weigh on the greenback. Gold has historically performed well when the U.S. dollar softens due to their strong negative correlation, and we see another round of dollar weakness over the next 6–12 months.
The UBS strategists named rising U.S. recession risks as the third reason to buy gold now. They believe that investors will flock to gold as a safe haven asset in the event of a recession.
“Overall, recent data coming out of the U.S. showed the country’s growth is slowing,” they detailed, citing weaker-than-expected 1Q GDP, six consecutive months of contracting manufacturing activity, the weakest consumer sentiment since November, and tighter credit conditions as factors “likely to weigh on growth and corporate profits.” They emphasized:
Based on data since 1980, gold’s relative performance versus the S&P 500 improved significantly during U.S. recessions.
Noting that gold is expected to hit $2,100/oz by year-end and $2,200/oz by March 2024, the UBS strategists said they retain their “most-preferred rating on gold” alongside their “positive stance on broad commodities.” They concluded: “We think gold should remain a hedge within a portfolio context.”
Do you agree with UBS about the reasons investors should buy gold now? Let us know in the comments section below.
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