Summary List Placement
Since gold topped out at $2,089 an ounce on August 7, the precious metal has declined by as much as 11%. The correction in gold should be viewed as temporary rather than the start of a further decline, according to a note from UBS. Investors should use the recent sell-off as an opportunity to add exposure at lower prices, as the longer-term bull case is still intact, UBS said. Here are three reasons investors should add exposure to gold, according to UBS. Visit Business Insider's homepage for more stories.
Gold prices have taken a breather in recent months, having topped out at $2,089 an ounce on August 7. Since then, the precious metal has declined by as much as 11%, at times falling below the $1,900-per-ounce level, which is a key technical resistance level, dating back to the 2011 high of $1,923 an ounce. The decline in gold is somewhat unusual, as during the sell-off there have been concerns over US fiscal stimulus, renewed COVID-19 restrictions, and heightened US-China tensions, which have weighed on risk sentiment. Typically a risk-off environment like this would have favored safe havens such as gold. The correction in gold should not be viewed as the start of a further decline in prices, but instead as a temporary correction, according to a note published by UBS on Tuesday. Here are three reasons why investors should take advantage of the recent sell-off in gold and add exposure to the precious metal. Read more: 4 reasons why the stock market will be volatile throughout October. And 3 reasons why this presents opportunities, Evercore says 1. "A supportive Fed." With ongoing gridlock in Congress surrounding a new fiscal stimulus bill being passed, "We anticipate that the Federal Reserve will remain accommodative. Alongside its commitment to keep rates on hold for longer, the central bank will likely increase its Treasury purchases and focus on longer-dated bonds, in our view. This should limit any technical rise in nominal rates," UBS said. 2. "A far from certain US election." A contested US presidential election outcome is a possibility, UBS said, adding that it could "add to further volatility and result in safe-haven flows, though more into gold, the Swiss franc, and the Japanese yen than into the US dollar, in our view. The greenback's longer-term trend is also downward due to its weaker interest rate advantage and the extent of US indebtedness. Since gold is priced in US dollars, a weaker dollar favors it [gold]." 3. "A more indebted world." "We think central banks are willing to tolerate a period of moderately higher inflation before raising rates (as the Fed's move toward average inflation targeting confirms). A more indebted world after COVID-19 favors lower rates, but also supports higher inflation levels given the unpredictability of fiscal stimulus. Gold thus offers a hedge against inflation as a 'real' asset," UBS said. UBS concluded that it expects gold to reach $2,000 per ounce by year-end, and could reach as high as $2,300 an ounce in a downside market scenario, representing potential upside of 5% and 21%, respectively. Gold traded up as much as 1% to $1,905 per ounce in Tuesday trades. Read more: 'We are going to see some big shifts in the coming 3 to 6 months': Investing pioneer Rob Arnott sounds the alarm on 'quite a few bubbles' in the market, including the tech boom - and tells us where he is finding bargains nowJoin the conversation about this story » NOW WATCH: Why Pikes Peak is the most dangerous racetrack in America
More like this (3)
Summary List Placement The upcoming US presidential election could be one of the most uncertain elections...Summary List Placement The upcoming US presidential election could be one of the most uncertain elections in the nation's recent history, making current investing decisions difficult. UBS says that a contested outcome is possible, and investors should head into safe assets right now. Here's what four market experts are saying about how to invest heading into the election. Visit Business Insider's homepage for more stories. 1. UBS: Expect a contested election, buy safe assets. In a note published Monday, UBS said that the outcome of the election is far from certain, and investors should head into safe assets like gold. "A contested outcome is still a possibility, which could add to further volatility and result in safe-haven flows, though more into gold, the Swiss franc, and the Japanese yen than into the US dollar, in our view." Investors should use the current drop in gold prices to add exposure to the precious metal, Mark Haefele, chief investment officer of UBS Global Wealth Management, said. 2. Goldman Sachs: Seek opportunities in healthcare options trades. "Stocks exposed to tax reform and the health care sector appear to be most clearly demonstrating their sensitivity to the election outcome," a team of Goldman Sachs strategists wrote in a Tuesday note. "Our options strategists pointed to the opportunity they see in health care call options given the sector's unusual implied volatility discount and depressed valuations."Read more: UBS says the chances of a Democratic sweep have risen to 50% as Trump and Biden square off in their first debate. These 9 assets will help investors profit if a blue wave comes crashing in. 3. JPMorgan: Go underweight US stocks. John Normund, JPMorgan head of cross-asset fundamental strategy, suggested investors be underweight in US assets, like domestic stocks. "If your baseline assumption is that there's going to be a contested election ... recognize that this is a US-specific event and therefore that argues for underweighting US assets versus other assets," he said in an interview with Bloomberg on Tuesday. 4. Morgan Stanley: Skew your portfolio based on the outcome. Mike Wilson, chief investment strategist at Morgan Stanley, told CNBC on Tuesday that the stock market will go up no matter which candidate wins the election. But investors should be ready to skew their portfolios depending on who wins the election. In a Democratic sweep, sectors like financials and energy may fare poorly because of increased regulation. Technology stocks may still perform well in a blue wave, though, because Wilson said Democrats "won't be as tough" on tech regulation. Join the conversation about this story » NOW WATCH: Here's what it's like to travel during the coronavirus outbreak
Summary List Placement Recent financial market returns point to investors shifting cash to safe havens and...Summary List Placement Recent financial market returns point to investors shifting cash to safe havens and growing more concerned about a slowing economic recovery, Jason Draho, head of asset allocation in the Americas for UBS, said Monday. After the September tech-stock correction ended, investors lifted long-dated Treasurys, the US dollar, and large-cap growth stocks. Cyclical assets including gold, small-caps, and high-yield bonds sank. The shifts "are consistent with investors seeking (relatively) safe assets as concerns rise about moderating growth and inflation disappointment," Draho said. Market participants can expect high growth uncertainty to "delay a sustained rotation towards more economically-sensitive assets," Draho added. Visit the Business Insider homepage for more stories. September brought heightened stock market volatility and a mass rotation out of tech giants, but the most recent week of returns signals a new concern gripping investors. Returns across the stock, bond, currency, and commodity markets point to increasing risks to economic growth and inflation, Jason Draho, head of asset allocation in the Americas at UBS, said in a Monday note. Last week saw investors pivot back to long-dated Treasurys, the US dollar, and large-cap growth stocks. More cyclical assets such as small-cap stocks, emerging market equities, gold, and high-yield bonds all tumbled over the period. Inflation expectations fell and 10-year real rates climbed slightly, reflecting a more bearish outlook toward price growth. The returns data can easily drive "spurious conclusions," but the shifts "are consistent with investors seeking (relatively) safe assets as concerns rise about moderating growth and inflation disappointment," Draho wrote. Read more: BANK OF AMERICA: Buy these 11 stocks to profit as e-commerce and robotics revolutionize their businesses and keep them growing faster than peers Those investors aren't without cause for concern. While some facets of the economy have roared back to their pre-pandemic highs, others remain mired in the coronavirus pandemic's fallout and have slowed their pace of recovery. New US jobless claims unexpectedly climbed to 870,000 filings for the week ended September 19, missing the economist estimate of 840,000 claims. Nonfarm payrolls data slated for release on Friday is expected to show the unemployment rate fall through September, but by a much smaller amount than in months prior. Gauges of consumer spending also point to a stagnating rebound. Retail sales climbed by just 0.6% in August, missing the consensus estimate of 1% growth and halving from July's 1.2% uptick. Investors' moves to safe havens are even more justified when looking ahead, Draho said. Hopes for new stimulus ahead of the November US presidential election are all but entirely dashed, with both parties' proposals still far from meeting in the middle. Rising COVID case counts in Europe recently renewed concerns of partial economic lockdowns, and cases are steadily rising in the US as well. Lastly, the Federal Reserve's latest policy meeting left some wanting greater detail around the central bank's forward guidance. In all, concerns of slowing economic growth "are likely to linger for at least a couple of months," Draho said. The upcoming election is set to push volatility higher, and uncertainties around the rollout of a coronavirus vaccine will keep some from returning to financial markets. Risk appetites could improve in early 2021 if Congress passes new stimulus and a vaccine wins regulatory approval, but investors shouldn't get their hopes up for a near-term reversal from last week, Draho said. "For now, expect structurally high growth uncertainty to keep volatility elevated and delay a sustained rotation towards more economically-sensitive assets," he added. Now read more markets coverage from Markets Insider and Business Insider: Fed's new inflation strategy will lift profits and reduce risks for stock investors, Goldman Sachs says Inovio tanks 39% after pausing coronavirus vaccine trial, trading halted 'We are going to see some big shifts in the coming 3-6 months': Investing pioneer Rob Arnott sounds the alarm on the market's greatest bubbles, including the big-tech boom — and tells us where he is finding bargains nowJoin the conversation about this story » NOW WATCH: Why NASA won't send humans to Venus
Summary List Placement Global stocks slid on Thursday, while the dollar edged up, after the...Summary List Placement Global stocks slid on Thursday, while the dollar edged up, after the US Federal Reserve gave no indication that any new stimulus measures would be forthcoming, as the economy continues to recover from the effects of the coronavirus pandemic. In its last meeting before US presidential elections in November, the Fed raised its forecasts for US economic growth, inflation and predicted unemployment will shrink faster than it expected three months ago. "The recovery is here, it's well along," Fed Chairman Jerome Powell said at a press conference on Wednesday after the decision to leave US interest rates at 0.25%, as expected. The central bank now expects gross domestic product to shrink by 3.7% this year, an improvement on its last estimate in June of a 6.5% decline. It forecast core consumer inflation will remain below its 2% target, but will average 1.5%, up from 1.0%, while it now expects unemployment to reach 7.6%, compared with its last forecast of 9.3%. And yet, US indices slid broadly, reacting more to the lack of any signal that more fiscal stimulus may be forthcoming. Futures on the S&P 500, the Dow Jones and the Nasdaq 100 fell between 1.0 and 1.4 percent, suggesting a second straight day of declines when the market opens later in the day. The dollar, meanwhile, rose for a third day against a basket of major currencies, to last trade up 0.1% at 93.21, set for its first monthly gain since April. Gold, which tends to move inversely to the dollar, fell by nearly 1% to $1,951 an ounce, set for its largest one-day loss in two weeks. Meanwhile, European shares fell, pushing the Stoxx 50 down by 0.7%, following a widespread decline on Asian equity markets overnight, when the Nikkei dropped 0.7%, the Shanghai Composite fell 0.4% and the Kospi lost 1.2%. Financial markets, and stocks in particular, have profited from trillions of dollars of cheap money that the stimulus programs that the Fed, and other central banks, have implemented this year to shore up the economy, encourage borrowing and consumer spending. The S&P 500 and the Nasdaq have hit record highs this month, fueled largely by the expectation that the Fed will firstly, keep rates low for an extended period of time, and secondly, will keep the option of providing more fiscal support on the table. "Markets always want more," Robert Carnell, regional head of Asia-Pacific research at ING, said. "But, should you keep feeding them?" The Fed signaled it will not raise US rates until at least 2023. "While risk assets might love the intravenous drip of monetary stimulus, it is time to focus on policies that the real economy need … Perhaps the market reaction here is more a realization of this and the fact that any resolution to the current impasse is unlikely until the Presidential election outcome is determined," Carnell said. Indeed, the overall health of the economy has improved rapidly, since witnessing the biggest quarterly contraction on record, between April and June. The number of people out of work has fallen to around 13.5 million from a pandemic high of over 23 million, while various gauges of economic activity, including manufacturing and consumer spending, show recovery is ongoing. "In terms of the overall economy, Chair Powell acknowledged that "the recovery has progressed more quickly than generally expected," but did caution that the recent pace may slow as 'the path ahead remains highly uncertain'," Jim Reid, a research strategist at Deutsche Bank said. "They are essentially projecting the economy to reach Q4 2019 pre-covid levels by the end of 2021," Reid said.Join the conversation about this story » NOW WATCH: A cleaning expert reveals her 3-step method for cleaning your entire home quickly