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

Swiss & Global Equities

Why Swiss equities now? This market offers equity investors the stability and agility they need to navigate this volatile period. 

Read more
Expertise

European Equities

European equities offer unrivalled opportunities in terms of breadth of sector and market exposure.

Read more

Most read

Insight 01.10.2020

COVID-19: UBP keeps you up to date

Since this coronavirus appeared, UBP has provided its clients with guidance and support as we all tackle this unprecedented global health crisis. We give you regular updates on everything from our own safety protocols and the recommendations issued by the authorities to our experts’ latest analysis on the effects of the pandemic on the world economy and financial markets.

Insight 30.06.2020

UBP Investment Outlook 2020 Reset

The Global Economy at the Crossroads

Insight 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.


Further reading

Insight 26.11.2020

European Small Caps – Rising Stars

Smaller companies as an exciting source of growth opportunities

Insight 24.11.2020

Hidden gems in Swiss & European small caps

Small and mid caps have traditionally recorded higher growth rates and investment returns over the long term than large caps: it is easier to generate a dynamic growth rate from a smaller base. Swiss and European small and medium-sized capitalisations – so-called ‘SMID caps’ – also tend to provide investors with ‘pure play’ exposure to major secular growth trends.

Insight 21.11.2020

UBP Investment Outlook 2021

A Brave New World