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Positive backdrop likely to drive gold to $2,000 again, says UBS

gold bar

The price of gold has moved below the psychological $1,900 per ounce level in the past few days but UBS seems to think that the yellow metal is likely to surge to $2,000 by the end of the year on the back of a positive backdrop.

Kelvin Tay, Regional Chief Investment Officer for the Swiss bank, told CNBC earlier today that UBS is long on gold due to the uncertainty created by both the upcoming US election and the COVID-19 pandemic, with investors likely to seek refuge in the yellow metal as a hedge against a potential market downturn.

“In (the) event of uncertainty over the U.S. election and the Covid-19 pandemic, gold is a very, very good hedge. And its recent weakness represents a great entry point for investors”, said Tay.

 

Tail risks and low interest rates likely to drive gold higher

UBS comments appear to support the thesis that tail risks continue to provide support to the price of gold, which remains muted during the European commodity trading session at $1,900 per ounce, advancing 0.04% on the back of a weaker US dollar.

Some of those risks would include a negative development on the health situation of US President Donald Trump – who recently tested positive for COVID-19 – ahead of the election and a potential second wave of lockdowns in Europe, while other elements like a global low interest rate environment and more stimulus coming from US Congress continue to create a floor for gold prices.

The favorable backdrop makes the current drop in the price of the precious metal a potential buying opportunity for investors, while technical indicators seem to suggest that a short-term jump may be ahead as well.

 

Gold’s price action shows a bullish pattern in the making

gold cup and handle
Gold spot (XAUUSD) price chart – 1-hour candles view with RSI, volume, and MACD – Source: TradingView

The latest price action seen by gold since 21 September seems to be forming a cup and handle pattern – a bullish formation that could lead to a break above the $1,980 if the pattern is confirmed.

Confirmation would be provided if the price surges above the handle in the next few sessions, a situation that should be accompanied by higher trading volumes.

Meanwhile, traders should keep their stop-losses on a short leash, as the recent bullishness seen in the US dollar combined with a risk-on attitude from investors could continue to depress gold prices below the $1,850 level.

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Alejandro Arrieche

Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.