UBS Group expects that as the Federal Reserve begins to cut interest rates, the holding cost of gold will decrease, and the inflow of funds into gold ETFs will further increase. Seasonal demand will drive the physical demand of china and India to rebound. In addition, global central banks are still buying gold, and there is still room for emerging market central banks to increase their holdings of gold.
After gold price surpassed $2500, it showed signs of fatigue, but UBS Group believes that with the imminent interest rate cut by the Federal Reserve and strong central bank demand, there is still room for gold price to rise in the future.
UBS Group Global Precious Metals Strategist Joni Teves released a report on Thursday, stating that as the gold price continues to hit historic highs, the market is gradually adapting to prices above $2500 per ounce. The short-term trend of gold price will mainly depend on the policy signals released by Powell at the Jackson Hole meeting later this week, with a possibility of a temporary pullback.
Teves mentioned in the report that despite the recent rise in gold prices lacking a clear catalyst, the macroeconomic environment in the recent period has been generally favorable to gold. Expectations of the Federal Reserve's loose policy, the decline in real interest rates, and the weakening of the US dollar are all important factors driving the rise in gold prices. In addition, the continued presence of geopolitical risks and the upcoming US elections and their potential impact on fiscal policy have also increased investors' interest in gold.
Previously mentioned by Wall Street Seen, over the past year, despite the gold-buying frenzy among Asian investors, Western investors have been on the sidelines. Now, with the Federal Reserve's interest rate cut approaching, Western investors have also joined the gold-buying frenzy.
Industry institutions, World Gold Council data shows that since May, the holding of physical gold ETFs has increased by 90.4 tons, equivalent to $7.3 billion, with seven of the past eight weeks showing a positive net inflow.
UBS Group's report also points out that although net long positions on the New York Commodity Exchange (COMEX) have increased recently, the level is still below the historical high, indicating that the overall market pricing is still relatively light, and investors still have plenty of room to continue increasing their gold allocation.
UBS Group expects that as the Federal Reserve begins to cut interest rates, the holding cost of gold will decrease, and the inflow of funds into gold ETFs will further increase.
In terms of physical demand, UBS Group observed that with the continuous rise in the price of gold, there is indeed some pressure on physical gold demand. In July, the total gold imports of China and India decreased by 58% year-on-year, although due to strong performance at the beginning of the year, the total import volume has still increased by 5% from the beginning of the year.
However, with the arrival of seasonal demand, UBS Group expects that the physical demand in China and India will rebound. In India, the wedding and festival season is approaching, which is usually a key period for gold consumption, and lower import taxes and strong economic prospects indicate growth in gold demand.
In addition, global central banks – the key drivers of previous rounds of gold price increases – are still buying gold. India's gold reserves increased by 5 tons in July, while China maintained its gold reserves unchanged for the third consecutive month.
UBS Group points out that despite the recent slowdown in central banks buying gold in the past few months, they will still be net buyers of gold. The gold holdings of many emerging market central banks are still relatively low compared to total reserve assets, indicating that these central banks still have room to increase their gold holdings.
Editor/ping