UBS sees gold price at $1,200 as a good entry point

The Swiss UBS advises its clients to buy gold If the price drops further to around $1,200 per troy ounce. Analyst Wayne Gordon expects real interest rates to move sideways in the near term, causing gold prices to continue hovering around the current price level of $1,200 to $1,300 per troy ounce .

According to him, it is therefore interesting to buy gold at a price of around $1,200 per troy ounce and take profit if the price rises again to a level of $1,300 per troy ounce.

In the first quarter of this year, the gold price rose by 9% due to rising geopolitical tensions and uncertainty about the elections in Europe. But now that some of those elections are behind us and central banks have expressed their intentions to raise interest rates, the Gold price back into a downward trend. Due to the appreciation of the euro against the dollar, the gold price in our currency is currently even lower than at the beginning of this year.

At the current valuation, according to UBS, gold is very interesting as a form of hedge in the investment portfolio. Especially if the labor market and the economy in the United States show little improvement this year , according to the UBS analyst.

UBS recommends buying gold at $1,200 per troy ounce

Gold price stabilizes

At the moment, the positive and negative influences on the gold price still balance each other out. A new interest rate hike by the Federal Reserve and the ECB's intention to taper its stimulus program have caused government bond yields to rise sharply. For example, German 10-year bonds deliver a yield of half a percent at the time of writing, while the yield was negative last year ago. Yields on US Treasuries have also continued to rise in recent months.

A rise in interest rates is usually unfavorable for gold in itself, but if inflation also rises at the same time, that effect is canceled out. That is why investors prefer to look at the development of the real interest rate, the interest rate after correction for currency depreciation. The fact that the gold price reacts strongly to this is also evident from the following graph, which shows the inverse relationship between gold and US government bonds.

Development of gold price versus US 10-year yields (Source: Bloomberg)