UBS expects the price of gold to sink to US$1,650 an ounce by the end of this year
Author of the article:
Financial Times
Chris Flood
Assets worth US$209 billion are held in ETFs backed by physical gold. Photo by REUTERS/Leonhard Foeger/File Photo Gold exchange-traded funds were hit by net outflows of US$9 billion last year in a retreat that could herald a significant decline in investor appetite for the precious metal in 2022.
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Marking the biggest annual withdrawal from gold ETFs since 2013, analysts are now warning the bullion market faces more significant headwinds with increases in interest rates in response to inflationary pressures and a stronger dollar expected to weigh on the price of the yellow metal this year.
“Many of the drivers that tend to be positive for the U.S. dollar — tighter central bank policy, less U.S. fiscal stimulus, and rising real interest rates — also tend to be negative for gold,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
UBS expects the price of gold to sink to US$1,650 an ounce by the end of this year.
Assets worth US$209 billion are held in ETFs backed by physical gold. These funds have become a key barometer of investor sentiment towards the precious metal.
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JPMorgan Chase & Co. said that central banks’ unwinding of “ultra-accommodative” monetary policies this year would be “outright bearish” for gold, leading to a steady decline in the price to an average of US$1,520 an ounce in the final quarter of 2022.
Gold hit an all-time high of US$2,067 an ounce in August 2020, but its foray above the US$2,000 level proved short-lived and bullion ended last year at US$1,806, down 12.6 per cent from its peak.
Weaker investor interest was the principal drag on prices, as demand for gold jewelry, bars and coins, industrial usage and buying by central banks all rose last year. But selling by investors led to net outflows of 173 tonnes worth US$9.1 billion from physically backed gold ETFs in 2021, according to the World Gold Council, a trade body.
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Ed Morse, global head of commodity research at Citi Group, said he expected to see “more selling pressure” on gold, leading to further ETF withdrawals of 300 tonnes this year and an additional 100 tonnes in 2023.
Citi is forecasting the price of gold to drop to an average of US$1,685 an ounce this year before weakening further to average US$1,500 in 2023.
Morse said he was “sympathetic” to the arguments that bloated government deficits and huge increases in public and private debt should support the gold price. But Citi has assigned only a 30-per-cent probability to a new bull market run that would drive the price of gold to a new peak above the US$2,000 an ounce level this year.
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Article content Most of the selling pressure last year was felt in the United States where gold ETFs registered net withdrawals of 201.3 tonnes worth US$10.8 billion. The United Kingdom market had outflows of 28.5 tonnes worth US$1.5 billion in 2021.
In the less mature Asian markets, lower gold prices spurred ETF inflows of 14.8 tonnes worth US$786.5 million in China. India-listed gold ETFs also saw demand increase with investors spending US$595.3 million to acquire 9.3 tonnes of additional holdings.
State Street Corp., which manages the world’s largest gold ETF, the SPDR Gold Trust, said it expected the yellow metal to resume its long-term structural bull market trend in 2022, driven by an increase in demand in the jewelry, industry and technology sectors in China and India.
Any escalation in geopolitical tensions between the U.S. and China or more violence in Ukraine or Kazakhstan could “trigger safe-haven demand” for gold, said James Steel, HSBC’s veteran precious metals analyst.
“Kazakhstan is a major oil producer and a higher oil price is gold supportive,” he said.
The Financial Times Ltd.
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