The gold price has repeatedly hit new highs. Despite the recent weak physical demand, the bullish sentiment remains strong, with Wall Street calling out a $3,000 slogan.

UBS Group summarized in its report on the 21st that the current bullish sentiment is strong and bearish voices are silent, indicating that there is still room for further rise in gold price. Conference representatives predict that gold prices will rise to over $2,900 in the next 12 months, and any pullback is expected to be temporary.

UBS further pointed out at the LBMA Precious Metals Conference in London that there is a strong bullish atmosphere currently, with the bears keeping quiet. Gold price is expected to have further upside. The conference specially mentioned global geopolitical risks and the uncertainty of the U.S. election. UBS predicts that under a “blue wave” (Democratic Party wins), gold prices are generally higher than under a “red wave” due to expectations of a weaker dollar environment and increased likelihood of further rate cuts by the Federal Reserve.

A scenario where the U.S. falls into a recession is most favorable for gold, while global central banks prematurely easing leading to an economic 'non-landing' is the most bearish scenario for gold.

UBS also reminds that market interest in golden minerals stocks is increasing, and if mining companies can continue to provide guidance and generate cash returns, it may improve investor sentiment. The lack of capital expenditure and projects in the industry in a quiet period may lead to increased merger and acquisition activities.

Is the strong bullish sentiment, with bears remaining quiet, a sign that the gold price is still undervalued?

Regarding the trend in gold prices, UBS stated that despite concerns about the current weak physical demand, the strong bullish prospects in the medium to long term remain unchanged.

Representatives are very bullish on gold, expecting prices to rise to above $2900 in the next 12 months. The dialogue confirms this bullish sentiment, although physical demand is currently weak due to the market having already risen significantly. People acknowledge that there may be some room for a pullback, although any pullback is expected to be shallow.

Recent weak physical demand for gold, with Chinese and Indian gold imports declining by 22% and 20% respectively, but there is an increase in demand for 1-ounce gold bars in the USA. Despite a 25% overall decrease in the US market demand in the first half of the year, gold bar and coin purchases have decreased by 45%, but they are still at a high level of the past decade.

Furthermore, UBS Group stated that it is currently difficult to find reasons to be bearish on gold:

Market participants seem increasingly finding it difficult to push gold into a bear market for any reason, reflecting the lack of gold shorts expectations that the Fed will not change direction in the short term, and reflecting the complete resolution of geopolitical risks. In addition, people are increasingly concerned about the US fiscal situation and expect the deficit to deteriorate further.

Overall, UBS Group stated that gold is still under-allocated, with investors having further room to increase their gold allocations, which will be a key driver for price increases in the next 12 months:

Despite the recent significant increase in gold prices, the gold market is not crowded. In the current loose monetary policy environment, not only the Fed but other central banks are also pursuing loose policies. Investors have a great interest in holding gold for portfolio diversification. Geopolitical risks and US election uncertainties also increase the possibility of investors increasing their holdings.

Although there has been a slight increase in short-term speculative positions, the indicators show that the broader market positions are still relatively low, with average gold allocations estimated to still be between 1-3%. This indicates that there is still significant room for growth in gold allocations.

Uncertainty supports gold.

UBS Group indicated that the focus of the meeting was on global geopolitical risks and the uncertainty of the US presidential election, these known unknowns are key in supporting gold as a safe-haven asset.

For gold, in the context of the two US presidential election scenarios, we expect the 'Blue Wave' to lead to generally higher gold prices than the 'Red Wave', due to the anticipated weaker dollar environment and the possibility of further rate cuts by the Fed.

In the 'Red Wave' scenario, the reaction function of gold will have more uncertainty, market views on the impact of this outcome on inflation and Fed response are crucial for gold trading.

Historically, on average, regardless of the result, there is not much difference in gold prices in the 12 months after the US presidential election.

UBS Group also pointed out the most bullish and bearish scenarios for gold price:

If the US enters a recession, it would be the most favorable scenario for gold. With a significant rate cut by the Fed, real interest rates would drop sharply, leading to strong investor inflows. A substantial weakening of the dollar should also provide additional support for gold.

Conversely, global central banks easing too early resulting in an economic 'non-landing' would be the most bearish scenario for gold, as Fed rate cuts may be relatively less than what the market prices in. Given the high cost of holding gold, investors find it challenging to maintain gold positions. The return of 'US exceptionalism' and a stronger dollar should also put pressure on gold prices.