Gold hits fresh record - UBS lifts forecast, says more ETF buying will be the next catalyst

By Barbara Kollmeyer

Gold prices charged to a fresh record high on Monday, with UBS bumping up its forecasts for the precious metal and predicting retail buying will be the next catalyst.

Gold was headed for its 14th record this year, with the June delivery price (GCM24) (GC00) up $10, or 0.4%, to $2,355.60 an ounce. That price marks a new intraday high and surpasses Friday's record close of $2,345.40 an ounce on Comex.

While expectations for Federal Reserve interest rate cuts and geopolitical tensions have been cited as a driving force for gold's roughly 13% rise this year so far, others have suggested investors may be trying to front run expectations that central banks will keep buying gold and purchase even more later this year.

Wall Street banks have been scrambling to keep up with a rally for gold. That has come "faster and more forcefully than our already bullish expectations," a team of UBS analysts led by strategist Giovanni Staunovo told clients in a note on Monday.

The analysts lifted their gold forecasts for this year by $250 an ounce each. Their June forecast was lifted to $2,300 an ounce, a target that has been exceeded, and year-end and end-March 2025 forecasts to $2,500 an ounce. The bank previously maintained an end-2024 target of $2,250 an ounce.

Despite record high prices for gold seen this year, Staunovo and his colleagues said gold exchange-traded fund holdings should start to rise once the Federal Reserve begins interest rate cuts this year, "as these buyers tend to move more in sync with interest rate adjustments."

"This even could trigger another step-up in demand via ETFs," where holdings stand at a 4-year low, said Stauvano. The rally thus far has been driven by buyers who "haven't traditionally made material purchases, while the usual ETF buyers have been net sellers," they said.

UBS also expects central banks to keep stepping up their purchases of gold.

Citi analysts boosted their gold price targets late last week. Their zero to three month price targets for gold and silver were lifted by 9% and 16%, respectively, to $2,400/oz and $28/oz.

"We see increased risk of gold markets averaging near our bull-case scenario of $2,500/oz for [the second half of 2024] and for silver trading to push to $30/oz," said a team led by analyst Aakash Doshi.

"It is not demand for duration or a weakening US$ trend that is driving the yellow metal to fresh records in recent weeks. But a Fed cycle turn could be a kicker if policymakers proceed with insurance cuts in June/July," the analysts said in a note on Friday.

Silver prices for June delivery (SIJ24) (SI00) rose $10.70, or 0.4%, to $2,356.10 an ounce on Monday.

Silver prices have risen 13% this year on a continuous contract basis, and on Friday closed at the highest level since June 16, 2021. Another gain on Monday would mark the eighth straight winning session for silver. Its seven-streak win completed Friday was the longest since Feb. 24, 2020.

-Barbara Kollmeyer

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04-08-24 0620ET

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