Singapore: Gold’s at risk of taking a tumble as a resurgent dollar erodes demand after the Federal Reserve opts for not one, but two rate increases before the year-end, according to UBS Group AG’s wealth-management unit, which forecasts that bullion may drop back to $1,150 an ounce.

“Definitely, second half of the year, we’re going to get two hikes – that’s not fully priced in, and that’s why most dollar strength’s to come,” Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at the unit in Hong Kong, said in an interview on Bloomberg TV. Spot gold, which traded at $1,228 an ounce on Thursday, was last below $1,150 in February.

Gold’s been in retreat this month, paring a gain since January, as US central bank policy makers have stepped up a drumbeat of commentary that the first rate rise of 2016 may come either as soon as next month or possibly in July, buoying the dollar. UBS’s Global Asset Management Head of Asia Pacific, Rene Buehlmann, said last month that as bullion offers no yield, it doesn’t add value to investors’ portfolios in the long run.

“Some people are going to get caught on the wrong side,” Schnider told Bloomberg’s Angie Lau. “Gold is going to roll over, we’re going to fall back to $1,150, and so be ready for more weakness in the short term.”

Losing run

Bullion for immediate delivery rose as much as 0.8 per cent on Thursday, snapping a six-day losing run, according to Bloomberg generic pricing. While the metal sank on Wednesday to $1,217.93, the lowest intraday level since April 6, it’s still 16 per cent higher this year as investor holdings have surged.

The odds of a US hike next month have risen to 34 per cent, up from 12 per cent at the end of April, and for July the chances are now better than even, Fed Funds futures show. The dollar has risen too, with a gauge of the US currency headed for the biggest monthly gain since January 2015.

Not everyone sees a retreat in bullion. Citigroup Inc. raised its year-end target by $100 to $1,250 an ounce, according to a report this week. While prices have fallen this month, that may provide an opportune moment to “buy-the-dip,” Citigroup said in the report that forecast commodities had turned a corner.