Gold prices could rally more than 10% in the next 18 months, a new report says.
The bullion bounce surge, which has taken off this month, will continue to be propelled by mounting investor worries, according to Swiss bank UBS.
“Gold is set to gain as recession, trade and geopolitical risks rise, and yields fall,” the report states.
An ounce of the metal, which recently fetched $1,520 could rally more than 10% to $1,680 in 2020, the usually-conservative bank says. Prices for the metal have moved between $1,100 and $1,300 an ounce for most of the last five years, according to data from Bloomberg.
But that lackluster price movement is all over now.
Uncertainty boosts prices
The UBS report highlights increased uncertainty across the globe as the catalyst for the recent and likely continued increase in the value of the yellow metal. The report states:
It is becoming increasingly challenging for market participants to anticipate and plan for the future. In this environment of rising uncertainty and falling opportunity costs of holding gold, the yellow metal stands out as a clean way to take a strategic position both for institutional investors as well as the official sector [meaning central banks.]
In other words, when nothing seems certain investors suddenly catch the gold bug. That is also helped by ultra-low interest rates which make the real or inflation-adjusted costs of holding bullion inconsequential.
The report, authored by UBS strategist Joni Teves, says that investors have recently piled into the gold futures and ETFs. She notes that the combined volumes are now at “a fresh all-time high.”
It also looks like the gold fever will last. “we think wider exposure to gold is still not overly extended and looks particularly muted compared to investor allocations to other asset classes,” the report states.
The bank says the price of the metal should average $1,550 an ounce next year, or $100 above the previous estimate of $1,450. However, the bank also notes there is upside potential for it to reach $1,680.
In other words, prices could approach $1700 an ounce, a level not seen in many years.