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The price of gold could hit more than $2,000 an ounce this year as investors turn to safe-haven assets amid escalating US-China tensions and spiking coronavirus cases, while the US dollar could weaken further, according to latest analysis.
The precious metal, which has continued to reach new highs, will likely reach $2,000 an ounce by end of September and end of December, analysts at UBS said on Tuesday.
“We remain positive on gold and have added the yellow metal to our most preferred asset list,” UBS said in its research note.
Last week, the bullion went up by 4.5 percent and moved higher by another 1.6 percent on Monday to an all-time record high of more than $1,930 an ounce. By Tuesday, it climbed to $1,976.74 an ounce, making it one of the year’s best-performing assets.
The recent rallies have pushed gold jewellery prices higher in the UAE. As of 1:36 pm, 24-karat (24k) gold was retailing at 234.25 UAE dirhams ($63.8) per gram, while 18K gold stood at 180 dirhams ($49).
“We think gold will continue to be supported by rising geopolitical tensions, in our view the primary drivers of the gold price are its negative correlation to real interest rates and the dollar,” UBS said.
“We think these three factors, in combination with limited supply growth as miners continue to restrain capital spending, will drive gold prices higher,” it added.
The US currency, on the other hand, will move in the opposite direction, amid the “fading US yield advantage” and heightened political uncertainty. Gold’s ascent is often associated with a weak US dollar.
“[A] broad US dollar depreciation appears to be gathering pace… Demand for US liquidity, which pushed the greenback higher at the start of the pandemic, has fallen,” UBS noted.
It pointed out that the political uncertainty is likely to continue, even if President Trump will not get re-elected later this year.
“Investors should not assume that pressure from the US on China would disappear if President Trump were to leave office, as the broad strategy to contain China looks set to continue,” UBS said.
The tensions between China and the US escalated again recently following the closure of the Chinese consulate in Houston, Texas last week. The US had the office shut down on the ground that the Asian state was allegedly “stealing” intellectual property.
The move was immediately met with retaliation, with the Chinese government ordering the closure of the US consulate in Chengdu on Monday.
(Reporting by Cleofe Maceda; editing by Seban Scaria)
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