Ubp, Union Bancaire Privée, has analyzed the situation of gold. Is it going up? Is it going down? If you are interested in the price of gold, here is a confidential report, signed by Nevine Pollini, senior analyst commodities at Ubp.
The price of gold has risen sharply and is up about 8.2% YTD thanks to the increased demand for safe haven assets, linked to concerns about the global economy, after China announced growth in 2014 at the slowest pace since 1990 and the cut in global growth estimates by the International Monetary Fund.
The surprise action of the Swiss National Bank, which removed the minimum exchange rate threshold between the franc and the euro and brought rates from -0.25% to -0.75%, also contributed to the gold rally. Another factor is the expectations on the effects of the European Central Bank’s QE.
Given the strength of the dollar, we believe the resilience of the yellow metal is truly remarkable, but we also recognize that negative and/or very low interest rates (the 10-year US Treasury yield has fallen to its lowest level since mid-2013) are reducing the opportunity cost of holding gold.
We have also seen a recovery in investment demand for gold, as evidenced by the significant inflows into gold ETFs for the first time since November 2014. Another factor that has supported gold prices recently has been a recovery in physical demand ahead of the Chinese New Year on February 19.
However, we remain skeptical of a further rise in gold prices given the strength of the dollar (currently at an 11-year high) and expectations that the Federal Reserve will start its rate hike cycle in the spring, which will keep gold prices in check.
Furthermore, we do not believe that the victory of the left-wing Syriza party in Greece will lead to a breakup of the Eurozone, as Syriza will seek a compromise with the Troika in an attempt to obtain a reduction in the cost of Greek debt and/or a new extension of loan maturities.
Macro conditions continue to be absolutely not favorable for gold; we expect the prices of the yellow metal to remain under pressure or, at best, to remain in a range between $1,050 and $1,350 per ounce in 2015, provided, of course, that the political crises that are unleashing globally do not worsen.
