Gold Dips: A Buying Opportunity, Not a Selling One

UBS analysts released a note on Monday suggesting that recent declines in gold prices should be viewed as buying opportunities rather than reasons to sell. This advice comes in light of a more than 3% drop in gold following the latest employment figures from the US.

The data revealed positive surprises in both employment and earnings. This week, key indicators to monitor include the May US Consumer Price Index (CPI) and the Federal Reserve’s upcoming meeting.

Concerns have also arisen regarding China’s reported lack of gold reserve increases in May. However, UBS pointed out the possibility of under-reporting by the International Monetary Fund (IMF) and reiterated its recommendation to purchase gold during price dips in the range of $2,250 to $2,300 per ounce.

While UBS recognizes that short-term CPI surprises might exert downward pressure on gold prices, they argue that the robust job market data doesn’t tell the full story. They highlighted an increase in the unemployment rate and a decrease in the job openings-to-unemployment ratio.

Looking forward, UBS predicts that the Federal Reserve will revise its projections to account for two rate cuts in 2024, with inflation continuing to moderate. They are maintaining a base case for a rate cut in September.

Central bank purchases of gold remain a significant factor, with Poland increasing its reserves in May. UBS expects total gold demand to reach between 950 and 1,000 metric tons in 2024. In light of ongoing geopolitical tensions and the approaching US elections, UBS identifies gold as a valuable hedge for investment portfolios, recommending an allocation of approximately 5% for those balanced in USD.