UBS said gold prices may surge above $1,800 per ounce driven by economic “uncertainty and negative real rates” caused by the coronavirus pandemic.
Gold prices have been strong this year and are up around 12% this year to around $1,698.61 per ounce, while the S&P 500 is down 12% over the same period.
The commodity has come off its 2020 highs amid the sharp rally in equity markets last month. In April, US stock markets had their best month since 1987. But now, UBS is putting its weight behind gold to push ahead again.
UBS Investment Bank’s Joni Teves said: “There is growing potential [for gold] to break $1,800 [per ounce] in my view.”
She added that“investor interest continues to grow in this environment of uncertainty and negative real rates.” UBS currently has a near term target price for gold at $1,790 per ounce.
Gold and interest rates generally have a negative correlation, and gold does well in a lower interest rate environment. US Fed has already slashed rates to near zero this year.
Teves added: “Gold is becoming attractive in this environment where uncertainty is very high, growth is expected to weaken, and at the same time you have negative real rates which make gold attractive to hold as a diversifier in investor portfolios.”
Last week, the World Gold Council released its first-quarter 2020 demand trends report for the precious metal, where it highlighted that the global coronavirus outbreak was “the single biggest factor influencing gold demand.”
“As the scale of the pandemic — and its potential economic impact — started to emerge, investors sought safe-haven assets,” the report said. “Gold [exchange-traded funds] ETFs saw the highest quarterly inflows for four years amid global uncertainty and financial market volatility.”
Also, last week, Bank of America raised its 18-month target price on gold to $3,000 per ounce. The report was called “The Fed Can’t Print Gold.”