Gold Losing Stigma for UBS as Tully Increases Forecasts for 2014

Photographer: Chris Ratcliffe/Bloomberg

Bullion climbed this year to the highest level in three months as signs the U.S. economy wasn’t recovering in line with expectations boosted demand for a haven. Close

Bullion climbed this year to the highest level in three months as signs the U.S.... Read More

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Photographer: Chris Ratcliffe/Bloomberg

Bullion climbed this year to the highest level in three months as signs the U.S. economy wasn’t recovering in line with expectations boosted demand for a haven.

UBS AG boosted forecasts for gold in 2014, citing a change in U.S. investors’ attitudes toward the precious metal that’s rallied this year on increased haven demand and buying from Asian consumers.

The one-month forecast was raised to $1,280 an ounce from $1,180, while the three-month outlook was increased to $1,350 from $1,100, analysts Edel Tully and Joni Teves said in a report. Gold may average $1,300 in 2014 from a previous estimate of $1,200, they said, while holding the 2015 target at $1,200.

Bullion climbed this year to the highest level in three months as signs the U.S. economy wasn’t recovering in line with expectations boosted demand for a haven. The more bullish view from UBS contrasts with outlooks from Societe Generale SA and Goldman Sachs Group Inc., which expect the metal to falter as the Federal Reserve presses on with cuts to stimulus. Gold slumped 28 percent in 2013 as investment holdings contracted.

“Gold has started to shed its stigma, if slowly,” Tully and Teves wrote in yesterday’s report. “Over the past thirteen months gold was either the favorite asset to short or to ignore completely. Recent developments, however, suggest that this is no longer the case, and momentum is returning.”

Gold for immediate delivery gained 0.3 percent to $1,315.72 at 5:22 p.m. in London. Prices rose to $1,332.45 on Feb. 18, the highest since Oct. 31, and are headed for a second monthly climb. This year, bullion is up 9.1 percent as the MSCI All-Country World Index of equities lost 0.9 percent.

Sentiment Shift

There’s a “ positive sentiment shift taking place amongst U.S. investors towards gold,” Tully and Teves said. “This marks quite a sea-change in attitude and, in turn, a sizeable potential boost for the metal.”

Bullion is being increasingly viewed by investors as insurance against potential stresses, such as further emerging-market turmoil, the analysts said. The improved sentiment is helped by Chinese physical buying, they said.

Assets in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, expanded 0.5 percent last week, a third straight increase and the longest rising streak since August. Holdings are up 2.45 tons in February after dropping for 13 months, according to data compiled by Bloomberg.

Gold will drop as U.S. growth improves, Goldman Sachs analysts led by Jeffrey Currie, head of commodities research in New York, said in a Feb. 12 report, reiterating a forecast for $1,050 by the end of the year. Bullion will average $1,050 in the fourth quarter, according to Robin Bhar, head of metals research at Societe Generale SA in London and the most-accurate forecaster tracked by Bloomberg in the past two years.

Smirk’s View

Bullion has lost its luster and will extend declines this year as the Fed tapers and the dollar strengthens, according to Justin Smirk, senior economist in Sydney at Westpac Banking Corp. and the second most-accurate forecaster tracked by Bloomberg in the past two years. Bullion is seen at $1,011 an ounce in December, Smirk said in a report today.

At the Federal Reserve’s January meeting, where bond purchases were reduced for a second time, policy makers signaled that they won’t let weaker economic reports interrupt plans to taper stimulus, according to minutes released yesterday.

Chinese consumers bought a record 1,065.8 metric tons of gold last year, 32 percent more than a year earlier, as the country overtook India as the biggest user, the World Gold Council said Feb. 18. India’s demand gained 13 percent to 974.8 tons as consumption growth was limited by import curbs, it said.

The 2015 forecast was held steady, according to the UBS report. The base case for U.S. growth of 3 percent this year with gradual tapering, and interest rate rises from mid-2015, placed a large obstacle in gold’s path, the analysts said.

“We do like gold a good deal more than we did at the end of 2013,” the UBS analysts wrote. “Although we feel gold isn’t deserving of a price tag north of $1,400, a price sub $1,200 seems similarly undeserved. Effectively we see gold higher, but within a range.”

To contact the reporter on this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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