Although the market expects the price of gold to enter a consolidation period, UBS believes that any price correction is an opportunity for investors to increase their gold holdings, and the continued existence of geopolitical risks may provide support for the gold market in the long term.
Overnight on April 23, the intraday price of gold plummeted 2.54% to $2330.23 an ounce.
The recent correction in gold prices has raised doubts in the market. After gold prices hit a record high this year, will the price of gold rise further?
On April 19, UBS released a research report entitled “Global Precious Metals Review”, stating that unless geopolitical risks escalate, gold may enter a consolidation period.
Recently, due to the tense situation between Israel and Iran, the price of gold once topped 2,400 US dollars per ounce, but this increase did not continue.
In the short term, the market's short-term reaction to such geopolitical news is usually intense and erratic. The market is nervous about the uncertainty over the weekend, which may provide some support for gold prices in the short term.
UBS anticipates that gold may enter a consolidation period in the short term.
If geopolitical tension eases, the focus of the gold market may shift to a period of consolidation of gold prices. UBS indicated that this phase may have begun in the past week.
If geopolitical risks escalate, “safe haven” capital flows to gold may increase. Continued geopolitical risks will ultimately support demand for gold, as investors may seek to diversify their portfolios and as a hedge against potential market instability.
Although some investors are concerned about selling gold too early and ending in profit, given the sharp rise in the price of gold, UBS believes that market participants may eventually prefer to sell part of their positions to lock in profits.
UBS stressed that although the available data does not show that gold trading is too crowded, market positioning (that is, investors' overall positions) has become the focus of attention of market participants. According to the data, net long positions in gold have recently been hovering around a 12-month high, and commodity trading advisors' (CTAs) holdings have also reached the maximum long level.
UBS believes that a healthy correction in gold prices indicates that the market can form a support base at a higher level. This will help strengthen investors' confidence in the long-term bullish market for gold.
As a result, UBS maintains a bullish stance on gold and believes that any price correction is an opportunity for investors to increase their gold holdings.
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