
THE gold price would rally towards $2,800 per ounce and break through $3,000 next year as central banks led by the US Federal Reserve embraced monetary policy easing, said UBS, the Swiss bank.
A weaker dollar would also give gold a tailwind while lingering geopolitical factors meant there were limited sellers of the yellow metal.
“We expect there to be ample room for gold allocations to grow over the coming quarters, in turn driving prices higher,” said the bank’s strategist Joni Teves in a report today.
The bank warned, however, that central bank purchases – which had driven the gold price to at least 30 new all-time highs this year – would start to moderate.
“Many central banks’ gold reserves remain small as a percentage to total assets, suggesting room for purchases to continue,” said Teves. “That said, the pace of buying is likely to moderate.”
In general, however the gold price was experiencing unique support. According to the World Gold Council last week physically-backed gold ETFs extended their inflow streak to five months mostly owing to purchases by North American funds.
Total purchases totalled $1.4bn during the month while global assets under management rose by 5% to $271bn, representing another month-end peak. Collective holdings climbed 18 tons to 3,200t by the end of September, the council said.
Gold’s continuing strength comes amid strained geopolitics ahead of a US election and with the threat of all-out war breaking out in the Middle East. “Lingering geopolitical risks add to the list of reasons investors would want to hold a core long position in gold,” said UBS.
While gold’s strength might deter some consumer buying, central banks were likely to be net buyers of the metal.
“Interest in gold as an alternative investment in markets such as China as well as growing incomes and lower import duties in India should help underpin physical demand. We expect official sector gold purchases and consumer demand to provide a sufficient foundation for the gold market to extend its rally,” said Teves.
The council’s senior market strategist John Reade warned against hasty investing in gold at the current point in the cycle. “By the time investors realise gold is going up, it’s gone up as much as it’s going to,” he said at the FT Mining Summit in September.
“Be careful of taking short term action because if the world doesn’t end, gold will weaken. And if the world does end we have more important things to think about,” he said.