UBS wealth unit recommends buying gold near $1,200 for insurance

Singapore: Gold will probably trade in a range of $1,200 to $1,300 (Dh4,408 and Dh4,775) and an ounce in the short-term as the metal tracks US real interest rates, according to UBS Group AG’s wealth management unit.

“We’re not saying we have a bullish bias; we’re not saying we have a bearish bias,” Wayne Gordon, executive director for commodities and foreign exchange, said in an interview on Tuesday. “We’re saying that tactically, people should be buying it somewhere near $1,200 and selling it again somewhere near $1,300, and it’s because we have a view that real rates go sideways. So the pickup in nominal rates will be equally matched by the pickup in inflation.”

Bullion climbed almost 9 per cent in the first quarter of the year, buoyed by worries over Donald Trump’s presidency and geopolitical risks. Prices have fallen since then and posted their first monthly decline this year in June. On Monday, the metal had the biggest one-day drop since November as equities and bond yields rallied on positive US manufacturing data, and traded at $1,224.55 an ounce by 11.11am in London on Tuesday.

If US unemployment keeps falling, and the Federal Reserve keeps raising interest rates no matter what the inflation data show, that will be negative for gold in the short term, Gordon said. Still, solid demand this year and weaker output, coupled with a lower dollar, are positive for prices, he said. If equity valuations start to drop, investors could turn to gold too, he added.

Gold could also act as insurance if the labour market doesn’t show further improvement in the US and inflation doesn’t pick up, which would make the Fed pause on its tightening path, or if global growth slows, said Gordon. “We like the insurance qualities for gold just from an unknown perspective at these sorts of levels,” Gordon said.