A series of recent losses have seen gold retreat back from its level of $2,000 per ounce. However, Swiss bank UBS is among those who see a buying opportunity and a return to that price range.
Gold is now sitting 4 percent below its year-to-date high reached in May 2023, noted a team of UBS strategists led by Wayne Gordon. Closing at its weakest level since a late March low, gold is set for the worst week since October last year, dogged by a strong U.S. dollar. But the price of gold is still up 7.7 percent on the year.
Gordon and the team said investors shouldn’t be too surprised by the consolidation seen in gold after such a strong rally. Their forecasts are unchanged—$2,050 per ounce by the end of September, $2,100 by the end of the year, $2,200 by the end of March 2024, and a new June 2024 target of $2,250.
UBS sees three reasons to buy gold right now, and the first is that central bank gold demand should stay robust. “Last year marked the 13th consecutive year of net gold purchases by global central banks and the highest level of annual demand on record,” said Gordon and his colleagues.
Based on first-quarter World Gold Council data and driven by geopolitical risks and diversification desires, UBS expects central banks will buy around 700 metric tons of gold this year, which would be vastly higher than the last decade’s average.
Broad U.S. dollar weakness is a second reason to buy, and investors should expect headwinds for the greenback to intensify as a Federal Reserve pivot to lower interest rates looks possible, maybe in the second half of the year, said UBS, which added that the European Central Bank would likely keep tightening monetary policy by contrast.
A final reason to buy gold is rising U.S. recession risks that could drive safe-haven flows. Also weighing in on gold’s prospects was fund manager Wisdom Tree whose head of commodities and macroeconomic research, Nitesh Shah, expects a new all-time nominal gold high by the end of 2023.
Shah noted that investors have been hedging in gold futures since California-based Silicon Valley Bank’s collapse earlier this year, with positioning weak in the run-up to that crisis. Flows into exchange-traded products have been less dramatic, but the analyst said an investor return to those “in significant force” could provide a major push to gold.
Gold has also been outpacing gains in the bond market, and he also sees central bank buying continuing, as sanctions on Russia spooked many owing to its war on Ukraine.
WisdomTree’s consensus scenario for gold sees the precious metal reaching $2,008 per ounce by the third quarter of 2023, $2,260 per ounce by the fourth quarter, and $2,285 by the first quarter of 2024.
