Gold is set for a comeback six to 12 months from now, according to UBS.
As long as the Federal Reserve sees no reason to raise interest rates in a hurry, gold should do well, according to strategists at the bank’s Chief Investment Office Wealth Management Research arm.
They see gold prices climbing to $1,350 per ounce over the next year, up 7% from its current level.
Because gold does not bear any interest, it loses appeal when rates rise and investors go after better alternatives.
Also, gold is favored in times of panic and economic stress, when investors are looking for assets that are considered safer.
UBS’ Wayne Gordon and Giovanni Staunovo said in a note that the Fed is still likely to raise its benchmark rate in December, and that may be bearish for gold in the short term.
And so, they forecast that gold could fall to as low as $1,225 an ounce over the next three months. Gold traded near $1,258.60 on Thursday, up by 0.4%.
They noted that Friday’s employment report was not enough to keep the Fed from raising rates later this year. The report was a dud; it showed fewer job gains than expected but did not have many worrying details about the labor market.
But after the Fed hikes rates in December, the outlook for gold should become much better, they said.
“A slow moving Fed and a moderate pickup in inflation should push real interest rates deeper into negative territory in 2017,” Gordon and Staunovo said. “Historically, this has acted as a powerful driver of higher gold prices.”