The crux of UBS’ bull story for the yellow metal is the Federal Reserve’s long-term ultra-low interest rate policy. Gordon and Staunovo said that as long as the Fed doesn’t boost rates substantially in a short period of time (and we all know the chances of that happening are miniscule), that gold should perform well.
Overall, the firm predicts gold will rise from current levels to around $1,350 per ounce over the next six to twelve months, which is about a 7% gain. However, that medium-term bullish call isn’t without a caveat.
The analysts warned that gold could drop as low as $1,225 an ounce (about a 2.3% decline) over the next three months, as investors await and then digest December’s upcoming Fed decision.
Still, UBS believes the Fed is highly unlikely to raise rates in December, which will ultimately be good news for gold. “A slow moving Fed and a moderate pickup in inflation should push real interest rates deeper into negative territory in 2017. Historically, this has acted as a powerful driver of higher gold prices.”
The SPDR Gold Trust ETF (NYSE:GLD) fell $0.50 (-0.42%) to $119.53 per share in premarket trading Friday. Year-to-date, the largest ETF tied to the spot price of gold bullion, with over $38 billion in assets, has gained 18.3%.