A turbulent week for gold has strategists at odds over the precious metal’s current utility as investors weigh the risks posed by a strengthening US dollar and global recovery with inflation concerns and low bond yields.
The gold price climbed for the fourth consecutive day, rising 0.4 per cent to $US1786.95 an ounce, and clawing back the losses it suffered in last week’s flash crash.
UBS has warned that the precious metal’s rebound will be short-lived, urging investors to ditch the commodity. It says the price could drop towards $US1600 an ounce.
However, other strategists are seizing on a buying opportunity, particularly for ASX-listed gold producers.
“The message must be: if you have a tactical position, get out; if you have a strategic position, hedge it,” Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at UBS Global Wealth Management CIO Office, told Bloomberg.
“In a world that looks better, why would you want to hold so much insurance asset, and that simply means the market needs to balance at the lower level.”
This view is predicated on an optimistic outlook for the global recovery, in which inflationary pressures ease and investors jump back into bonds, pushing yields higher. It also implies further support for the US dollar, particularly if the US Federal Reserve’s hints of a rate increase materialise this year.
Analysts at Singapore’s OCBC Bank underscore the inevitable rise of US real yields in response to increasingly positive economic data as a significant obstacle for further gains in gold prices.
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