Gold Price Upside Risks Remain in the Near Term – UBS

gold price
gold prices

Gold price (XAUUSD) rose sharply during the American and Asian sessions as traders remained bullish on the metal. Gold is now trading at $1,860, its highest level since September 2011. Similarly, other precious metals like silver, platinum, and palladium, have been on an upward trend. The three are up by 6.37%, 0.75%, and 0.40%, respectively. However, an analyst at UBS is warning about a potential pullback in gold prices in the near term.

Gold price jumps on stimulus talks

One reason why gold price is jumping, according to analysts, is because of the deteriorating economic situation in the US. The number of coronavirus infections has continued to rise, leading many analysts to expect more government and Federal Reserve stimulus package.

In a statement yesterday, Mitch McConnel, the senior most Republican leader, said that he supports a new stimulus package. This means that American families could receive at least $1,200 in the near term. In a statement, an analyst at Zaner Metals said:

“Clearly, the passage of the EU recovery fund combined with the beginning of negotiations on another U.S. stimulus package provides a solid backdrop for the bull camp,”

A stimulus package is a good thing for gold price because most investors view the metal as a hedge against dollar weakness. Indeed, the US dollar index is trading at the lowest level since January last year as shown below. At the same time, because of Fed’s QE, yields on bonds have dropped to historic lows. In a statement, an analyst at TD Securities said:

“For gold it’s the same old story: Real rates continue to grind lower and we are reaching levels close to the global financial crisis.”

US dollar index
US dollar index

Gold ETF demand rises

Gold price is also rising because of the rising demand for the metal in the ETF market. According to Bloomberg, which cited data from Blackrock, inflows in gold-backed ETFs has jumped by about 25% to $25 billion this year. Inflows into silver have jumped by more than 30% this year.

Meanwhile, in the past, we have written that investors are holding trillions of dry powder. This means that these investors could continue to pile into gold and other assets.

Therefore, the real reasons why gold price is rallying are: US, EU, and Asia stimulus packages, lower yields, increased demand, and a weaker US dollar. Equally important, statements by analysts have been supportive of gold price. For example, in a recent note, analysts at Bank of America have said that the price of gold could rise to $3,000.

However, Joni Teves, an analyst at UBS believes that profit-taking could see gold price decline slightly. She argued that most investors who are already in gold could start profit-taking instead of adding to their positions.

Gold Price technical outlook

The weekly chart shows that gold price has been in an upward trend. The price is above the 50-day and 100-day exponential moving averages. It is also above the ascending trend line that is shown in purple below. Also, the RSI has jumped to the highest level since March this year.

Therefore, the price is likely to continue rising as bulls attempt to move past the all-time high of $1,920. On the flip side, a move below $1,800 could mean that there are still sellers in the market.

Don’t miss a beat! Follow us on Telegram and Twitter.

Gold price forecast

Gold Price

More content