Bloomberg News

Gold Seen ‘at Risk’ as UBS Cuts 2012 Forecast 18% to $1,680

March 29, 2012

UBS AG (UBSN) cut its full-year gold forecast 18 percent to $1,680 an ounce, citing evidence of a U.S. economic recovery and decline in expectations that the Federal Reserve will add further stimulus.

The revision compared with an earlier estimate of $2,050 an ounce, a target described as “aggressive,” analysts including Edel Tully and Julien Garran wrote in a report dated yesterday. UBS cut one- and three-month targets for gold earlier this month.

The outlook from the Zurich-based lender is less bullish than that from Goldman Sachs Group Inc. (GS:US), which forecasts higher gold prices over three, six and 12 months as there will be additional easing from the U.S. central bank. Fed Chairman Ben S. Bernanke has said the recovery in the U.S. isn’t assured.

“The view that the U.S. economic recovery is looking more sustainable is becoming increasingly accepted,” UBS analysts said. “Gold is at risk, for it needs persistent inflows of investor money to keep it on its upward trajectory.”

Spot gold has rallied 5.9 percent this year, averaging $1,691.33 an ounce so far in 2012, and trading at $1,655.88 at 10:44 a.m. in London. The metal reached a record $1,921.15 last September, and averaged about $1,572 in 2011.

The precious metal may decline in the coming quarter before a second-half recovery, the UBS analysts wrote. Gold wasn’t redundant as the U.S. recovery is “hardly powerful” and Europe remains in recession, they wrote.

Further Options

U.S. gross domestic product grew at a revised 3 percent annual rate in the fourth quarter, the most since the second quarter of 2010, government data show. Bernanke told ABC News earlier this month that unemployment remains too high, and policy makers don’t rule out further options to boost growth.

The central bank has bought $2.3 trillion of debt in two rounds of so-called quantitative easing that ended in June 2011, during which gold rallied. The Fed has also pledged to keep interest rates near zero through late 2014.

Goldman Sachs has a three-month forecast of $1,785 for Comex gold futures, with the six-month target at $1,840 and 12 months at $1,940, according to a report yesterday. “Our economists forecast subdued growth and further easing by the Fed in 2012,” the Goldman report said.

Holdings in bullion-backed exchange-traded products increased 1.4 percent this year to 2,389.8 metric tons as of yesterday, according to data compiled Bloomberg. That’s within 1 percent of the all-time high, reached on March 13.

UBS has positive outlooks on palladium and platinum over three months because of the rebound in U.S. growth, as well as a positive view on iron ore over the same timeframe because of so- called tight supply, according to the report.

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editor responsible for this story: Jake Lloyd-Smith at jlloydsmith@bloomberg.net


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