UBS Is Looking Past Gold’s Short-Term Weakness

New York (July 5)  While it’s surprising that that gold hasn’t benefited from growing global trade tensions, one commodity analyst said that the precious metal still looks good in the long-term.

In an interview with Bloomberg, Wayne Gordon, executive director of commodities at UBS Wealth Management, said that in the near-term gold will continue to suffer as the global economy, U.S. equity markets and the U.S. dollar continue to build momentum, despite the threat of a full-blown trade war between the U.S. and China.

Friday is the U.S. government’s deadline to implement $34 billion in tariffs on imported Chinese goods. The Chinese government has threatened to retaliate in kind on the same day.

“I think overall at this point the U.S. equity market has been pretty resilient to a lot of these trade discussions,” he said. “The dollar has been very strong on a broad basis and that has even surprised us… The third thing would be even though we’ve seen these trade frictions… the impact on overall global growth has been pretty minimal. Those factors are the reason why people haven’t headed back to gold.

While gold has not been able to attract investors’ attention lately, Gordon added that USB still sees potential for the yellow metal as the U.S. dollar loses momentum.

“Largely the risk to gold is another leg up in the U.S. dollar,” he said. “But we don’t see that coming. People are going to go back to risk assets.  That is certainly not bullish for gold, but it should have a downward impact on the U.S. dollar, and we think that could support gold.

Looking ahead over the next year, Gordon said that gold prices should push higher as rising inflation pressures push down real interest rates.

“If you put yourself in a position in 12-months’ time, you’ve got stronger inflation coming through and you’ve got the [Federal Reserve] completing most of its rate hikes so real rates will start to head back down again.”

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