UBS sees gold prices dropping to $1,600 by the end of 2022

Jonny Tevis of UBS investment bank expects recent strength in gold prices to be “short-term” as geopolitical risks fade.

Gold prices rebounded in recent weeks as investors sought safe havens as fears of a Russian invasion of Ukraine rattled global markets. On Monday, the Russian President Russian President Vladimir Putin Command of troops in two separate regions in eastern Ukraine After he announced that he would recognize their independence.

Spot gold recently surpassed the $1,900 level, last settling at $1,908.46 an ounce in the morning of the Asian trading hours on Tuesday. This is sharply above the levels around $1800 in early February.

Looking ahead, Teeves said the gold market is expected to return to focus on macro drivers such as real prices, the US. Federal Reserve policy as well as growth prospects. In fact, UBS sees gold prices dropping to $1,600 an ounce by the end of 2022.

“The environment in which real rates are rising and the Fed’s tightening policy provides a negative backdrop for gold,” she said. “We believe that the force must eventually … be short-lived.”

As we approach the end of the current quarter, the Federal Reserve It is widely expected to raise interest rates at its March meeting To calm inflationary pressures, Teeves said that is likely to put pressure on gold.

Expectations of higher interest rates tend to push the yields of assets such as US Treasuries higher, which could reduce the attractiveness of non-yielding assets such as gold.

However, she acknowledged that the upside risks for gold are rising.

“I think the main risk here is if we start to see reallocation in gold, with the expectation that even though real prices are up, they are likely to remain in negative territory, so gold reallocation remains attractive,” the strategist said.

Moreover, allocations to gold could begin to rebuild as investors grow increasingly concerned about slowing economic growth as the Federal Reserve tightens its policy, she said.