In a note Monday, UBS analysts advised that recent dips in the gold price are opportunities to buy, not sell. The firm's note follows a more than 3% decline in the yellow metal on Friday after the latest US employment data.
Employment and earnings data sprung positive surprises. Key factors to watch this week include the May US Consumer Price Index (CPI) and the Federal Reserve meeting.
Furthermore, China's reported lack of gold reserve additions in May sparked some concern. however, UBS highlights potential under-reporting by the International Monetary Fund (IMF). They reiterate their previous recommendation of buying gold on dips around $2,250-$2,300 per ounce.
UBS acknowledges that near-term upside surprises in the CPI could put downward pressure on gold prices. However, they believe the strong job market data may not reflect the whole picture, pointing to a rise in the unemployment rate and a decline in the job openings-to-unemployment ratio.
Looking ahead, UBS expects the Fed to adjust its projections to reflect two rate cuts in 2024, with inflation still moderating. They maintain a base case of a rate cut in September.
Central bank gold buying remains a factor, with Poland adding to their reserves in May. UBS anticipates total demand reaching 950-1,000 metric tons in 2024. Given ongoing geopolitical tensions and the upcoming US elections, UBS sees gold as a valuable portfolio hedge, recommending an allocation of around 5% for a USD-balanced portfolio.