- UBS says gold prices could hit $4,000/oz next year if uncertainty persists
The price of gold soared to a fresh record high in dollar terms on Tuesday as global investors kicked off September with a flight to safe haven assets.
US President Donald Trump’s challenges to Federal Reserve independence and global trade standards have shaken faith in the dollar, which has fallen by around 9.4 per cent against a basket of major global currencies.
Meanwhile, renewed concerns about the fiscal health of countries around the world have prompted a sell off across bonds and stocks at the start of September.
Gold jumped to an intraday record high of around $3,567 per ounce in early trading, taking gains over the last year to more than 40 per cent.
The precious yellow metal currently trades at £2,609.38 in sterling terms, with a discount to the dollar price reflecting exchange rates.
Gold prices rose as investors kicked off December in a bearish mood
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘Warning lights are flashing about increasingly tricky economic conditions and geopolitical risk.
‘As concerns collide about the global outlook, inflationary pressures and worrisome public finances, the FTSE 100 remains on the backfoot, with other European indices also largely in the red.’
Gold to hit $4,000/oz next year?
Analysts at UBS added: ‘Gold’s status as a durable long-term portfolio diversifier is strengthening amid higher government debts, persistent inflation, geopolitical risks, and the desire of ex-G10 central banks to raise their longer-term holdings as a percentage of total reserves.’
The investment bank expects gold to keep outperforming and now forecasts a price of $3,700/oz by June next year, driven by geopolitical turmoil and central bank purchases.
‘An increase to $4,000/oz in a risk scenario where geopolitical or economic conditions deteriorate cannot be ruled out,’ it said.
Nick Cawley, contributing analyst at Solomon Global, which sells physical gold and silver, expects the precious yellow metal to ‘test’ $3,750/oz this year but with ‘volatility along the way’.
‘The fundamental drivers supporting [gold and silver] remain robust, buoyed by continued central bank diversification away from dollar-denominated assets,’ he said.
Interest rates to guide prices
While a year-to-date gain of around 30 per cent is impressive, gold prices have still largely moved sideways since late April.
This reflects forecasts for the pace and scale of global interest rate cuts, particularly from the Fed, which have steadily eased as fears of resurgent inflation have grown.
Veteran gold investor and manager of the £600million Jupiter Gold & Silver fund, Ned Naylor-Leyland said real interest rate expectations will continue to drive prices.
He told This is Money: ‘I think that if we get a nasty [equities] sell off from here, the market will start pricing rate cuts very quickly.
‘That is real interest rate negative, which means that gold will rally.
‘Conversely, if we do get interest rate hikes – versus the broadly flat rates outlook profile we have at the moment – then that would be negative for dollar gold.
‘There is a structural need to do rate cuts on lots of levels, whether that be fixed interest assets being heavily underwater or the debt interest bill of US PLC, for example – all of this requires a lot of cuts.’
Gold prices are up by around 40% over the last 12 months
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