Looking forward to 2020, the Swiss bank details a number of factors that are joining to push the price of the yellow metal higher. Find out what they are here.
After already predicting in August that the price of gold will reach $1,680 by 2020, Swiss bank UBS has raised its forecast for the metal for the second time this year. Now, the bank known for its conservative predictions sees the metal soaring to $1,730 by the end of next year, a roughly 15% increase from current valuations.
In their report, the bank’s strategists outlined various factors that should send the metal’s prices flying over the coming year. One will be a persistent environment of negative real rates that will create a dearth of haven options during a time when investors are rushing to safety. Central banks around the world have sliced their rates as of late, with many top economies now issuing bonds with a negative yield, forcing bond holders to pay the government. Despite this, the appetite for bonds has hardly subsided, showing that investors are turning towards risk-averse assets after a lengthy period of profit-chasing.
The global growth slowdown will also play a prominent role in gold’s continued leaps, as disappointing reports from top manufacturers continue to pour in. The slowdown ties directly into the U.S.-China trade war, which has already taken its toll on both economies as well as the global market. Other uncertainties include the rising likelihood of a U.S. recession, the risk of which currently sits at its highest point since 2008, according to a Federal Reserve gauge.
Despite some losses in September, UBS noted that the metal’s price hasn’t been jumping in both directions but rather appears to be on a steady climb. Although gold has fallen off since its recent high of $1,553, it has continually bounced off from the important $1,500 level, suggesting a potential long-term upwards trajectory.
The bank took note of current buyers, stating that individual investors have yet to truly make waves in the gold market. Instead, the gains so far have been powered in good part by large funds, which have steadily increased their gold allocation in recent months. Besides institutions, the jump to six-year highs was also driven by heightened interest by central banks around the world. In 2018, the official sector ramped up its purchases to more than 650 tons by year’s end, and early forecasts say that the number could be even higher this year. While many nations have made multi-ton acquisitions over the past months, China’s case has been especially prominent, with the People’s Bank of China now rivaling Russia in terms of bullion purchases.
According to the bank, the relative absence of individual investors thus far is a bullish development, as their entry into the market will play a vital role in what UBS sees as an exciting year for gold.