UBS, one of the world’s leading financial institutions, has recently advised investors to buy gold now, providing three compelling reasons for investors to consider buying the precious metal. The bank’s analysts have further forecasted that gold prices could reach an all-time high this year, creating a strong case for investors to seize the opportunity.
Anticipating a breakthrough in gold prices, with a potential all-time high later this year, the renowned Swiss-based investment banking giant maintains its “most-preferred rating” on gold.
UBS Identifies three key factors encouraging investors to buy gold now
Switzerland-based global investment bank UBS has outlined three compelling reasons to contemplate investing in gold at this time. In a publication titled “Three Reasons to Buy Gold Now,” released by UBS Chief Investment Office on Thursday, the bank’s strategists have expressed their anticipation that gold is on track to exceed its previous all-time peak in the course of this year.
Despite recognizing the retracement of gold prices from their recent peak, the strategists stated:
“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.”
First Factor
An essential element fueling the optimistic perspective of UBS strategists regarding gold is their belief in the continued robust demand from central banks. They elucidated that global central banks exhibited a record-breaking level of gold acquisitions last year, marking the 13th consecutive year of net gold purchases and attaining the highest annual demand in recorded history dating back to 1950.
Referring to the first-quarter 2023 data provided by the World Gold Council, which indicates that central banks are projected to acquire approximately 700 metric tons of gold this year, surpassing the average since 2010 of below 500 metric tons, the UBS strategists elaborated:
“ 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 behaviour of central banks. “
Second Factor
UBS identifies the second factor that is anticipated to drive the increase in gold prices, which revolves around the broader weakness of the U.S. dollar. The strategists explained that the trajectory of a weakening dollar is evident, as the U.S. Federal Reserve has indicated a pause in its ongoing tightening cycle following a series of 500 basis points rate hikes over the past 14 months.
In the view of UBS, the ongoing decrease in the U.S. yield carry is expected to exert further pressure on the U.S. dollar. Historically, gold has demonstrated a positive performance when the U.S. dollar weakens, owing to its notable negative correlation. Consequently, UBS foresees another period of dollar weakness over the next 6-12 months, reinforcing the potential for gold to thrive in such a scenario.
Third Factor
The UBS strategists have identified the escalation of U.S. recession risks as the third motive to consider buying gold now. They hold the belief that in the event of a recession, investors will seek refuge in gold as a safe-haven asset.
The strategists from UBS provided a detailed analysis, stating that recent data from the U.S. indicates a deceleration in economic growth. They highlighted factors such as lower-than-anticipated first-quarter GDP, six consecutive months of declining manufacturing activity, the lowest consumer sentiment since November, and tighter credit conditions. These factors are expected to have an adverse impact on growth and corporate profits. Emphasizing this point, they stated:
“Based on data since 1980, gold’s relative performance versus the S&P 500 improved significantly during U.S. recessions.”
UBS strategists maintain positive outlook on Gold
Taking into account the projected price targets of $2,100 per ounce by the end of the year and $2,200 per ounce by March 2024, the UBS strategists indicated that they maintain their “most-preferred rating on gold” along with a “positive stance on broad commodities.” Concluding their analysis, they stated, “We believe that gold should continue to serve as a hedge within a portfolio context.”
In conclusion, UBS, a global investment bank, presents a bullish case for investing in gold based on factors such as global economic uncertainty, inflationary pressures, and increased central bank demand. With expectations of gold reaching all-time highs, UBS recommends considering gold as a portfolio hedge in the current market landscape.
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