Gold has ‘growing potential’ to break $1,800 an ounce, says UBS

Finance news

A mark of 999.9 fine sits on hallmarked one kilogram gold bullion bars at the Valcambi SA precious metal refinery in Lugano, Switzerland, on April 24, 2018.

Stefan Wermuth | Bloomberg | Getty Images

Gold prices could “break the highs” seen earlier this year, after declining in March along with assets across the board, according to UBS Investment Bank’s Joni Teves.

“There is growing potential (for gold) to break $1,800 (per ounce) in my view,” Joni Teves, precious metal strategist at UBS Investment Bank, told CNBC’s “Squawk Box Asia” on Monday. In the near term, the firm has a target price for gold at $1,790 per ounce.

That comes as “investor interest continues to grow in this environment of uncertainty and negative real rates,” Teves said.

As of Monday afternoon Singapore time, the price of spot gold was around $1,698.61 per ounce, an almost 12% increase year to date.

Last week, the World Gold Council released its first-quarter 2020 demand trends report for the precious metal, where it highlighted that the global coronavirus outbreak was “the single biggest factor influencing gold demand.”

“As the scale of the pandemic — and its potential economic impact — started to emerge, investors sought safe-haven assets,” the report said. “Gold ETFs saw the highest quarterly inflows for four years amid global uncertainty and financial market volatility.”

For her part, UBS’ Teves said the move in gold had been drive by a “pickup in investor interest, particularly from institutional investors.”

“Gold is becoming attractive in this environment where uncertainty is very high, growth is expected to weaken, and at the same time you have negative real rates which make gold attractive to hold as a diversifier in investor portfolios,” Teves said.

Meanwhile, Fat Prophets’ David Lennox told CNBC in an email that the “bigger tailwind” for gold prices is in the actions of government and central banks.

Large government expenditure to stimulate “flagging economies” hit by Covid-19 has raised concerns over debt in a future without the virus, said Lennox, who is a resources analyst at the firm.

Furthermore, he added, currencies are also being driven lower as a result of central banks cutting rates to stimulate economies.

“Fiat currencies post COVID will not be the place to be invested,” Lennox said, in reference to government-issued currency  that is not backed by a physical commodity.