1. Newsroom
  2. Gold : risks for small downside correction
Menu
Analysen 23.09.2019

Gold : risks for small downside correction

Gold : risks for small downside correction

Gold prices have stabilised around USD 1,500 per ounce, following the US Federal Reserve's decision to cut interest rates by 0.25%, bringing its key rate to 2.00%.


Gold displays a negative correlation to US real interest rates, meaning that lower Fed interest rates are supportive for the gold price. The Fed's latest decision was not unanimous, which means that further rate cuts are not a given. At the margin this is a mild negative for gold prices and it means they may dip in the short term.

US–China trade relations have stopped deteriorating; US President Donald Trump did not implement the latest tariff increase that was scheduled and the two sides are negotiating once again. This suggests that there is little aggressive upside pressure for gold price increases in the short term. If the US and China come to a trade agreement before the end of the year, this can lead to a drop in gold prices to levels of around USD 1,420 per ounce. We believe this will be a good buying opportunity for longer-term investors as the outlook for gold remains highly constructive. The price is being further supported by the fact that central bank gold reserves as a percentage of total reserves are at multi-decade lows. Also, interest rates around the world have declined and will likely continue to do so. We note the ECB cut its deposit rate to -0.5% at its September meeting and indicated that it will increase its QE programme if it deems this necessary.

The combination of negative deposit rates and the prospect of further QE is highly supportive for the gold price. Indeed, if retail banks begin to charge depositors to hold cash we believe this will lead to significant retail client interest in gold over the coming months and years.

Gold will also benefit from any increase in geopolitical risks, of which there are many. The US–China trade quarrel is one aspect in a broader US policy of trying to contain China, and this is unlikely to be the last time we see friction between the two countries. Furthermore, if tensions in the Middle East continue to deteriorate then gold should perform well as a safe-haven asset. Consequently, it makes a lot of sense to have gold in any portfolio, despite the short-term risk of a modest decline in the gold price.

Our expertise

Peter_Kinsella_150x150.jpg

Peter Kinsella
Global Head of Forex Strategy

Expertise

Impact investing - Contributing to a more sustainable future

What are the key features of impact investing?

Read more

Meistgelesene News

Analysen 01.10.2020

COVID-19: Die UBP hält Sie auf dem Laufenden

Seit dem Ausbruch des Coronavirus begleiten und unterstützen wir unsere Kunden während dieser ungewöhnlichen Zeit einer weltweiten Gesundheitskrise. Die Bank informiert Sie regelmässig über die Anpassungen ihrer Massnahmen an die von den Gesundheitsbehörden vorgegebenen Vorsichtsregeln. Ausserdem kommen unsere Experten zu Wort, welche auf die Auswirkungen der Pandemie auf die Weltwirtschaft und die Finanzmärkte eingehen.

Analysen 30.06.2020

Aktualisierter Ausblick 2020

Weltwirtschaft - quo vadis?

Analysen 24.06.2020

Market turmoil brings new opportunities for pragmatic investors

March 2020 was difficult time for many investors, as COVID-19 spread across Europe and the US, leading to sharp sell-offs in fixed-income credit markets. While such market turbulence is not to be welcomed, its occurrence can create opportunities.

Auch lesenswert

Analysen 23.10.2020

Podcast - No election rally for the dollar

Our Global Head of Forex Strategy, Peter Kinsella, shares his thoughts on the forthcoming US presidential election.

Analysen 15.10.2020

The draw of the booming fintech sector

Martin Moeller, Portfolio Manager of our newly launched strategy, shares his view on why global fintech equities are an interesting investment right now.

Analysen 05.10.2020

Webinar – Opportunities in the Gold Mining Sector

On Thursday 1 October 2020, UBP's experts Norman Villamin and Peter Kinsella hosted a webinar with Evy Hambro, Global Head of Thematic and Sector Investing at Blackrock, to discuss what gold investors can expect in the quarters ahead.