As a seasoned analyst with over two decades of experience navigating financial markets, I’ve witnessed my fair share of market fluctuations and trends. The latest report from UBS about gold prices seems plausible based on current macroeconomic indicators. The weakening US dollar, lower interest rates, and growing federal debt all point towards a favorable environment for gold investment.
Financial institution UBS forecasts that the cost of gold will continue to rise and potentially reach around $2,700 per ounce by June of the coming year, given the weakening of the U.S. dollar due to interest rate reductions by the Federal Reserve.
According to a recently released report from UBS, their investment team observed that the DXY index, which gauges the strength of the US dollar versus six significant foreign currencies, has declined by approximately 5% since June. Simultaneously, gold prices reached a record peak close to $2,600 per ounce.
As a crypto investor, I’ve noticed that gold has been thriving due to the prospect of lower interest rates. This is because lower interest rates decrease the opportunity cost of holding a non-yielding asset like gold. Interestingly, this growth in gold occurs during a time when the US producer price index (PPI) and monthly core consumer inflation readings surpassed expectations.
According to the company’s statement, markets seem to be concentrating on news stories implying that the Federal Reserve might decrease interest rates by 0.5 percentage points rather than 0.25 this coming week. Moreover, they mentioned:
From our perspective, the overall inflation figures have been satisfactory enough for the Federal Reserve to consider reducing interest rates this week, given the weakening job market. However, these numbers do not necessarily warrant a drastic reduction in rates. Data on retail sales and industrial production, scheduled for release on Tuesday, might sway the Fed’s decision. If these figures show signs of weakness, it could prompt a 0.5% decrease in interest rates.
According to the bank’s primary forecast, we’re not looking at a recession, but instead, a smooth transition towards it – a so-called “soft landing.” This soft landing might prompt them to lower interest rates by 1 percentage point this year, and another 1 percentage point in the following year.
Should this event occur, the value of the precious metal might continue increasing as markets shift towards lower interest rates. Moreover, UBS points out that the increasing U.S. federal debt could potentially act as a drag on the U.S. dollar’s value in the long term.
Conversely, gold has experienced a surge and increased hoarding, as evidenced by the near return of 3,182 metric tons in total gold exchange-traded fund holdings this year. In simpler terms, more people have been buying gold through these investment funds. UBS’ analysts have pointed out this trend.
Due to anticipated interest rate reductions from the Fed, the value of not earning interest on an asset becomes less appealing compared to other options. This situation could potentially drive up the price of gold, possibly reaching $2,700 per ounce by June next year. Furthermore, we think that gold’s ability to protect against economic and geopolitical risks makes it a compelling choice for diversifying investment portfolios during uncertain times.
According to reports from CryptoGlobe, Societe Generale has completely moved all its commodity investments into gold due to heightened geopolitical concerns and a less favorable overall commodity market trend.
As a researcher, I’ve noticed an intriguing development: The French bank has boosted its gold reserves to account for 7% of its overall asset distribution. This represents a significant 40% surge when compared to the previous quarter. This strategic shift towards gold suggests a growing faith in gold as a reliable safe-haven asset, given the persisting uncertainties in global market dynamics.
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2024-09-18 05:59