Commodities
Gold positioning does not look stretched despite record highs: UBS
Investing.com — In August 2024, prices reached record highs, surpassing $2,500. Despite this, UBS analysts believe the gold market is not overvalued.
The analysts consider macroeconomic factors, investor positioning, and market dynamics to conclude that there is potential for further price increases.
The recent rally in gold prices has been largely driven by a favorable macroeconomic environment. UBS analysts point to several factors that have aligned to support the precious metal’s ascent.
“Dovish Fed expectations – with UBS economists now forecasting three 25bp rate cuts this year – the move lower in real rates, and a weaker US dollar have all been positive for the gold price,” the analysts said.
Such monetary easing is expected to bolster gold by lowering real interest rates and weakening the U.S. dollar, both of which traditionally support higher gold prices.
In addition to monetary policy, geopolitical risks and the upcoming U.S. elections have heightened uncertainty, further enhancing gold’s appeal as a safe-haven asset. Moreover, the U.S. dollar’s recent weakness, which often moves inversely to gold, has provided an additional tailwind for the metal’s price rise.
While the exact catalyst for the latest surge in gold prices is not immediately clear, UBS emphasizes that the broader macroeconomic backdrop has been highly conducive to this upward movement.
Despite the increase in gold prices, UBS asserts that market positioning does not seem overextended. This perspective is supported by several indicators that paint a picture of a market that is far from overcrowded.
For instance, while net long positions on Comex have risen significantly, they remain below historical highs. This suggests that there is still considerable room for additional allocations to gold without the risk of creating an overly leveraged market.
Further supporting this view are the sustained inflows into gold exchange-traded funds (ETFs). UBS analysts highlight that these inflows reflect a continued strong interest in gold as an investment.
They expect that these trends will persist, especially as the Federal Reserve begins to cut rates, thereby reducing the cost of holding gold positions.
These factors indicate that investors are not excessively leveraged in gold, leaving the market well-positioned to absorb further investments without the risk of a significant pullback.
UBS analysts have also observed a reestablishment of historical macroeconomic relationships that have traditionally influenced gold prices. One key observation is the stabilization of gold’s negative correlation with U.S. real interest rates.
This negative beta is a positive sign for gold’s continued strength, as it suggests that the metal will continue to benefit from a lower rate environment.
Additionally, gold’s dual role as both a safe haven and a correlated asset with risk markets has become increasingly evident. While gold has moved in tandem with risk assets due to shifting Fed expectations, its safe-haven appeal has limited its downside during periods of market stress.
This unique positioning in the current economic landscape further supports UBS’s view that gold’s ascent is well-grounded.
On the physical demand side, UBS notes some weakness, particularly in major markets like China and India. “Combined imports to China and India in July were down 58% y/y, though the YTD volumes are still up by 5% given the strong start to the year,” the analysts said.
However, on a year-to-date basis, volumes remain slightly up, thanks to a strong start earlier in the year. UBS expects that seasonal factors, particularly in India ahead of major festivals like Dussehra and Diwali, will support a rebound in physical demand despite the higher global prices.
The official sector has continued to purchase gold, albeit at a slower pace. Countries such as India, Poland, and Uzbekistan have added to their reserves, while China has maintained its holdings for several months.
UBS believes that many emerging market central banks will continue to be net buyers of gold, as their gold holdings relative to total reserves remain low compared to their peers.
By Paul Carsten
LONDON (Reuters) -Oil prices fell back slightly on Thursday, a day after settling at multi-month highs on the latest U.S. sanctions on Russia and a larger-than-forecast fall in stocks.
futures were down 37 cents, or 0.5%, to $81.66 per barrel by 1042 GMT, after rising 2.6% in the previous session to their highest since July 26 last year.
U.S. West Texas Intermediate crude futures slid 35 cents, or 0.4%, to $79.69 a barrel, after gaining 3.3% on Wednesday to their highest since July 19.
U.S. crude oil stocks fell last week to their lowest since April 2022 as exports rose and imports fell, the Energy Information Administration (EIA) said on Wednesday. [EIA/S]
The 2 million-barrel draw was more than the 992,000-barrel decline analysts had expected in a Reuters poll.
The drop added to a tightened global supply outlook after the U.S. imposed broader sanctions on Russian oil producers and tankers. The sanctions have sent Moscow’s top customers scouring the globe for replacement barrels, while shipping rates have surged too.
The Biden administration on Wednesday imposed hundreds of additional sanctions targeting Russia’s military industrial base and evasion schemes.
On Monday, Donald Trump will be sworn in for his second term as U.S. president.
With oil at its current levels, that may lead to clashes with the Organization of the Petroleum Exporting Countries (OPEC) if Trump follows his previous playbook. During his first term he demanded the producer group rein in prices whenever Brent climbed to around $80.
OPEC and its allies, which collectively as OPEC+ have been curtailing output over the past two years, are likely to be cautious about increasing supply despite the recent price rally, said Commodity Context founder Rory Johnston.
“The producer group has had its optimism dashed so frequently over the past year that it is likely to err on the side of caution before beginning the cut-easing process,” Johnston said.
Limiting oil’s gains, Israel and Hamas agreed to a deal to halt fighting in Gaza and exchange Israeli hostages for Palestinian prisoners, according to an official.
On the demand front, global oil expanded by 1.2 million barrels per day in the first two weeks in 2025 from the same period a year earlier, slightly below expectations, JPMorgan analysts wrote in a note.
The analysts expect oil demand to grow by 1.4 million bpd year on year in coming weeks, driven by heightened travel activities in India, where a huge festival gathering is taking place, as well as by travel for Lunar New Year celebrations in China at the end of January.
Some investors are also eying potential interest rate cuts by the U.S. Federal Reserve in 2025 following data on an easing in core U.S. inflation – which could lend support to economic activities and energy consumption.
Investing.com – prices could see headwinds in the near term due to broader economic uncertainty, although the metal has received support from global consumption outpacing supply, according to analysts at Bank of America.
A stronger US dollar and weak industrial activity has placed pressure on silver recently, while President-elect Donald Trump’s plans to impose strict import tariffs on Canada and Mexico — key suppliers of the metal to the US — have threatened to dislocate silver markets, the analysts said in a note to clients.
However, silver’s price has hovered at around $30 an ounce over the past nine months. By 04:02 ET (09:02 GMT) on Thursday, silver was trading up by 0.5% at $30.81.
The BofA analysts led by Michael Widmer argued that, in their view, this resilience has been tied to “consistent silver market deficits”, with “limited mine production growth […] a key source of price support” in particular.
Global consumption of silver outpaced production of the metal in both 2022 and 2023, and is expected to have done so yet again in 2024, research from BofA found.
They estimated that 37,083 tonnes of silver will be consumer this year, down by 0.4% from the projected amount in 2024, while output is seen edging up by 3.5% to 33,021 tonnes. Despite the change, the silver market would remain in deficit — a trend the BofA analysts anticipated will continue into 2026.
“[T]he silver market has been in deficit for a while now and those shortfalls finally count,” the analysts wrote. They noted that this support has been mirrored in some regions, with silver “trading at a premium” in India and consumers in China having to “pay up to source ounces.”
As a result, the analysts said silver has “solid fundamentals”, adding that they are “constructive further out” on the metal.
“Silver won’t lose its luster long-term,” they said.
Investing.com– Gold prices rose to a one-month high in Asian trade on Thursday, tracking a drop in the dollar and Treasury yields as mildly softer consumer inflation data spurred bets on lower interest rates this year.
The yellow metal was now close to breaking above $2,700 an ounce for the first time since early December, amid some bets that softer inflation and a cooling labor market will allow the Federal Reserve to cut interest rates further this year.
But more gains in gold were limited by diminished safe haven demand, after Israel and Hamas signed a U.S.-brokered ceasefire. Anticipation of more U.S. economic cues also limited losses in the dollar, as did uncertainty ahead of President-elect Donald Trump’s nomination on Monday.
rose slightly to $2,697.45 an ounce, while expiring in February rose 0.4% to $2,728.0 an ounce by 00:01 ET (05:01 GMT).
Gold benefits from CPI relief, dollar down
Gains in gold came largely after consumer price index inflation data for December read slightly lower than expected. Headline was in line with estimates, while just missed expectations.
But the print- which came just a day after softer-than-expected data- spurred increased bets that easing U.S. inflation will give the Fed more confidence to cut rates this year. The central bank is projected to cut rates twice in 2025, half of its total reductions in 2024.
Lower rates benefit gold by reducing the opportunity cost of investing in non-yielding assets.
The slid from a two-year high on the CPI data, but still retained a bulk of its run-up in the past month.
Gold gains limited as safe haven demand eases, econ. data looms
But gains in gold were limited by easing safe haven demand, especially after the Israel-Hamas ceasefire. The Middle East conflict had been a key driver of gold demand in 2024.
The yellow metal was also pressured by a rally in broader risk-driven assets, as the prospect of U.S. rate cuts boosted risk appetite.
Traders were still on edge before more key economic readings due in the coming days. U.S. retail sales and jobless claims data is due later in the day.
Other precious metals were mixed, having clocked muted gains on this week’s inflation readings. fell 0.1% to $948.15 an ounce, while rose 0.3% to $31.622 an ounce.
Among industrial metals, copper prices steadied after a series of strong gains in recent sessions. Benchmark on the London Metal Exchange rose 0.3% to $9,192.50 a ton, while March were flat at $4.3957 a pound.
Focus is now squarely on Chinese data for the fourth quarter, due on Friday, for more cues on the world’s biggest copper importer.
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