On Thursday, UBS radically revised its gold price forecast in the wake of a dramatic slump in prices to near three-year lows following the much anticipated statements from the U.S. Federal Reserve.
The investment bank lowered its one-month gold price forecast by 12.3% from its previous expectation to $1,250 a troy ounce. It trimmed its three-month gold price forecast by 10% to $1,350 an ounce, and its 2013 full-year forecast also by 10% to $1,440 an ounce. In addition, UBS cut its forecast for 2014 to $1,325 an ounce from $1,625 an ounce. For 2015, the bank revised its projection for gold price to $1,200 an ounce from $1,500 an ounce.
The revision comes after prices for both spot gold and silver slumped to their lowest levels since September 2010. The sharp slump followed comments from U.S. Federal Reserve Chairman Ben Bernanke on Wednesday. He suggested that U.S. could start winding down its bond-buying program by the end of this year. Gold, silver and other bullion metals are considered a hedge against the inflation and currency weakness that such measures can trigger, and loose accommodative policies have sent gold to record highs in recent years.
Gold slumped sharply on Thursday to reach $1,287.90 an ounce, while silver price dropped to as low as $19.791 an ounce, 7.2% lower on the day. Both metals traded at prices not seen since September 2010.
U.S. Federal Reserve’s Chairman Bernanke indicated that a slower pace of Fed asset purchases could emerge later this year should economic data meet the Fed’s expectations. This news was not really new or unexpected by market participants. However, the new detail is that 7% unemployment rate might be a possible threshold for ending asset purchases which could potentially be reached by mid-2014. The downside risks to the U.S. economy and the labour market have diminished or at least this is the general understanding.
Therefore, UBS expectations for quantitative easing tapering to the fourth quarter of 2013 were revised from the first quarter of 2014. The bank expects the announcement in September during the 18th FOMC meeting.
