UBS and Deutsche Bank: Gold price to $1,800 per troy ounce

The gold price will rise further to $1,800 per troy ounce this year, according to analysts at Deutsche Bank and UBS. According to UBS, uncertainty about the economic outlook is causing a flight to gold. The precious metal also benefits from negative real interest rates, a situation in which market interest rates no longer compensate for inflation. Under those circumstances, it is more attractive to own gold than to hold money.

According to analyst Joni Teves of Switzerland's UBS, investors are still concerned about the economic impact of the coronavirus. In an explanatory note to CNBC she said gold has the potential to break through $1,800 per troy ounce. For the short term, the bank has a price target of $1,790 per troy ounce. From UBS's report:

"As the scale of the pandemic – and its potential economic impact – becomes visible, investors are looking for safe havens. Gold ETFs saw the biggest inflows in four years in the first quarter of this year due to global uncertainty and volatility in financial markets. Gold becomes attractive in these circumstances, where uncertainty is high and economic growth is expected to weaken. We also have to deal with negative real interest rates, which makes gold attractive as a form of diversification in the investment portfolio."

Weaker dollar positive for gold

Deutsche Bank analysts also have a price target of $1,800 per troy ounce of gold for this year. Despite the fact that the extreme volatility in the financial markets has eased somewhat, the bank still sees upside potential for the precious metal. For example, the bank expects governments and central banks to further expand their stimulus measures. As long as the economic recovery remains difficult and central banks have to continue to expand their balance sheets, the Gold price expected to increase further.

At the same time, Deutsche Bank sees another development that is favorable for gold. The sharp fall in US Treasury yields has narrowed the interest rate differential with other major economies. As a result, it is currently less attractive to hold dollars against currencies such as the euro and the Japanese yen. The bank also expects that the Federal Reserve will have to take a leading role in new monetary stimulus programs. That puts pressure on the value of the dollar, which is theoretically beneficial for gold.

Disclaimer: Holland Gold does not provide investment advice and this article should not be considered as such. Past performance is no guarantee of future results.

This contribution was made from Geotrendlines