‘Attractive risk-reward’: Gold to rally by double-digit percentage in 2023, says UBS


Rising interest rates and a strong dollar have left gold in the dust this year. But UBS predicted a rebound in the price of the precious metal, saying it would rise 13% by next winter. Gold has traditionally been considered an inflation hedge. But rising interest rates have turned investors away from bullion by increasing the opportunity cost of holding zero-yield assets. Gold is down 18% since March, as prices hit $2,000 an ounce, close to an all-time high. Spot gold was trading around $1,676 an ounce on Monday, and UBS expects prices to reach $1,900 an ounce by the end of 2023. The Swiss investment bank believes that the risk-reward of owning the precious metal will increase “as the current Fed tightening cycle ends.” In a note to clients on November 7, UBS said that the actual Gold prices have historically risen by 19% for every 1% cut in rates. A “real rate” is an interest rate that has been adjusted to offset the effects of inflation. UBS is not only anticipating that the Federal Reserve will halt rate hikes until February, but it also expects the central bank to cut interest rates by 175 basis points by the end of 2023. “We think gold should benefit and therefore holding long positions in gold will offer an attractive risk-reward as the tightening cycle comes to an end,” their analysts said. UBS acknowledged that gold prices could see headwinds over the next few months, thanks to the Federal Reserve indicating a potentially higher-than-expected terminal rate — the point when the Fed stops raising rates. “It’s always difficult to try to pick the bottom,” UBS precious metals strategist Joni Teves said in the research note. “That said, we think any weakness in gold over the coming months should ultimately provide opportunities for a higher position in prices through 2023, as the Fed tightens up and eventually takes a more lenient stance. turns into.” UBS also pointed to support for gold prices due to demand from institutional investors. Central banks have been net buyers of gold amid a broad trend of diversification away from the US dollar. The Russian invasion of Ukraine earlier this year and subsequent sanctions have strengthened the strategies of many countries.

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