UBS: ”Don’t Believe China’s Central Bank, Gold Dip is a Buying Opportunity, Not Selling”

UBS analysts advised clients in a note issued today that recent declines in the gold price are buying opportunities, not selling opportunities. The firm’s note comes after the yellow metal fell by more than 3% at the end of trading last week following the latest US employment data and a Reuters report that the Chinese central bank has stopped buying gold.

The employment data surprised positively for the dollar and negatively for gold. Markets are this week awaiting the release of the US consumer price index for May and the Federal Reserve meeting, events that will cause strong market changes.

We cannot forget the impact of China’s reports of a decline in gold reserve purchases in May and what this has caused some gold investors, and especially bulls, to worry about. However, UBS highlights the possibility of suspected manipulation of data by the International Monetary Fund (IMF). UBS analysts reiterate their previous recommendation to buy gold at dips of $2,250 to $2,300 an ounce.

UBS acknowledges that near-term upside surprises in the consumer price index could put pressure on gold prices. However, they believe that strong labor market data may not be telling the whole story, pointing to a rising unemployment rate and a declining job-to-population ratio.

UBS Fed Interest Rate Expectations

Looking ahead, UBS is expected to adjust its expectations to reflect two rate cuts in 2024, as inflation remains moderate. They maintain the base case of a rate cut at the September meeting.

Central bank gold buying remains an important factor, with Poland adding to its reserves in May. UBS expects total demand to reach 950-1000 metric tons in 2024. Given the ongoing geopolitical tensions and the upcoming US elections, UBS sees gold as a valuable hedge for investment portfolios, recommending an allocation of around 5% for a US dollar-denominated balanced portfolio.

Gold Dips Despite Dollar Decline, Eyes on Fed and Inflation Data

Gold prices fell during trading today, Tuesday, despite a decline in the US dollar as investors await a key inflation reading in the United States and a decision by the US Federal Reserve on interest rates to get signals on when the central bank will start cutting rates.

The Consumer Price Index (CPI) inflation report for May, due out on Wednesday, will be the next major data point, along with the conclusion of the Federal Reserve’s two-day meeting on the same day. Updated economic projections from Federal Reserve officials this week are expected to show fewer rate cuts than policymakers expected three months ago amid unexpectedly strong inflation.

The US Interest Rate Tracking Tool available on showed that investors’ odds of the Fed cutting rates by 25 basis points at the September meeting fell to 45% from 51.3% a week ago, in the wake of the stronger-than-expected US jobs report. Strong US jobs data and reports that the Chinese central bank is stopping gold buying saw bullion fall by around 3.5%, or $83, on Friday in its biggest daily decline since November 2020. China, the largest official gold buyer in the sector, is expected to resume its gold buying spree once prices fall from the record highs they reached in May.

Gold and Dollar Now

Gold futures are now down 0.3% to $2320 an ounce. While spot gold is falling by about 0.33% to $2303 an ounce. On the other hand, the dollar index is down 0.36% to 104.730 points.

Other Metals

Among other metals, spot silver fell 2.2% to $29.13 an ounce, platinum fell 0.9% to $958.55 and palladium lost 1% to $895.13.

Urgent: Strong Start for Oil Prices Now Amid Uncertainty

Crude oil prices started the week with strong gains during these moments of trading today, Monday, amid expectations of rising fuel demand during the summer driving season. The rest of the week may see volatility, following the strong US jobs data released last Friday, which appears to have further weakened expectations of rate cuts – and improved demand.

The Bureau of Labor Statistics reported a 272,000 increase in nonfarm employment for May, which was higher than expected and pushed the dollar higher. Despite the unemployment rate also rising to 4%, the market focused on the additional jobs as it awaits the upcoming Federal Reserve meeting this week.

In the meantime, in Europe, the euro came under pressure after the far right swept through several EU member states in Sunday’s European Parliament elections, adding to uncertainty in commodity markets. However, news that France will hold early elections at the end of the month after the landslide victory of Marine Le Pen’s National Rally party did not help oil prices either.

Oil Prices Now

Brent crude futures are up 1.9% to $81.15 a barrel. West Texas Intermediate crude futures are up 2.2% to $77.18 a barrel

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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