The wave of positive vaccine news in recent days has dented the gold price as investors unwind hedges and return their cash to riskier assets.
Following the US election gold rallied to $1,970/oz, but the gold price has since tumbled to $1,800/oz as outflows from exchange traded funds hit their highest point since March.
“The announced efficacy of Covid-19 vaccines and the speed of progress has surprised even us, and has clearly brought forward investors' expectations of a return to normal, and apparently cut their need for hedges,” UBS analyst Wayne Gordon wrote in a client note.
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Despite the recent fall in the gold price and the expectation that the global economy will bounce back once Covid-19 vaccines are available, both UBS and Goldman Sachs are still bullish about gold in the medium term.
“Our medium-term bullish view on gold is unchanged,” Goldman Sachs analyst Mikhail Sprogis wrote in a note to clients, maintaining the bank’s 12-month $2,300/oz target for gold.
The Goldman analysts said they expected gold to look attractive again as inflation rises following an expected US government fiscal stimulus package.
They also argue that gold’s recent weakness is a result of investors buying relatively cheap cyclical equities which will begin to look less attractive as their prices increase.
“We think that the correction in the gold market was a churn vs a turn and expect gold to go higher when more evidence of inflation emerges,” the note said. “Until then gold may continue to face pressure from reflationless cyclical rotation.”
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The UBS analysts said that reactions by investors to the recent vaccine news was “premature”.
They also predicted that inflation will rise because of US stimulus plans and set a target price for gold of $2,000/oz in March 2021.
“Despite the status quo, we think gold can recover in 1Q21 and maintain our forecasts for now,” the note said.
To contact the author of this story with feedback or news, email James Booth
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Gold still has further to rally, say Goldman and UBS, even though a vaccine is near - Financial News
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