Wealth Blog

Gold doldrums in private bank-speak

PUBLISHED : Tuesday, 16 April, 2013, 7:00pm
UPDATED : Tuesday, 16 April, 2013, 7:00pm

We’ve been expecting it to topple for ages. Most of the pundits have been trumpeting sky-high gold as the safe haven for so long that it seemed almost tumble-proof, but now here it goes. Downwards at speed. Today it’s plunged more than US$100 (HK$776) in just a few hours. Is it the result of Cypriot banks dumping the stuff to liquidate cash? Who knows, you could get away with accusing them of just about anything at the moment.

But the good folks at UBS are out giving advice so it must be an official gold emergency. Dominic Schnider, head of non-traditional asset classes (NTAC) research and UBS CIO Wealth Management Research is today advising investors “to protect their gold positions over the next three months.” Not sure what “protect” means here, but it sounds sensible. It’s all due to the lack of investment demand caused by fading investment fears, a bias towards more US$ strength in the short term and a bull run in US equities, which are all conspiring to drive the gold price down beyond US$ 1,525/oz, he says.

Well I think that’s what he says. ”Gold also finds no support from discussions in the FOMC for the US Federal Reserve to taper off or even halt its asset buying programme over the coming quarters,” he adds. Er, yes, Dominic, I’m sure you are right. I’m not a total financial humpty, but sorry, I don’t know what you are talking about. Investment houses have lowered their gold price forecasts and the technical chart picture has deteriorated as well, reinforcing the downward pressure, he adds. OK, that’s clear. Not very enlightening, but clear.

UBS expects the fragile sentiment on gold to continue in 2013, “with the bias to break below key support levels,” he says. Does no one teach these chaps to write in English? If I was Dominic’s non-expert client I’d be struggling. It must be as clear as mud if your first language isn’t English. He continues: “While the decline in the gold price does not correspond with our outlook for ongoing negative real interest rates, long-term investors should seek short-term price protection. “Roughly translated, I think that means he doesn’t agree that tanking gold prices mean interest rates will stay low. But I could be wrong. And how exactly do you “seek short-term price protection”?

“Investors should also avoid gold as an underlying for yield-enhancement strategies for the time being.” Dominic, you’ve got me there. Now I can only guess. I think he means don’t rely on gold to prop up your flagging portfolio. But I’m not sure. “To reflect a lower starting point for our longer-term forecast, we lowered our 12-month gold forecast to US$1,750/oz from US$1,875/oz.” OK, so he thinks gold will recover a bit this year, after an initial dip: “We also lowered our 3-month trading range to US$1,450–1,630 from US$1,525–1,755/oz.”

Hooray! Something I understand without reading it three times. But I spoke too soon. “That said, we reiterate our view that the developed world still has issues to resolve that debt monetization and money's loss of purchasing power.” It’s official. I’m stupid. No idea what that sentence means. I hope UBS gives its private banking clients a dictionary of wealth management-speak. It’s a shame, as I wanted to give readers something succinct, like “Gold headed for doldrums, so dump now,” and today’s UBS press release landed in the inbox with a welcome thud. And it did say “press release” which means the bank expects dimwitted hacks to understand it. But sadly I’m just too blonde.

I think, in a nutshell, Dominic believes gold looks dodge short term, but might perk up a bit later in the year. To which I can only add the pearls gathered from my own much less erudite sources, which amount to “If you’ve got gold, hold. If not, wait a bit till it drops more, then buy some.” They aren’t printing any more of it, in fact, unlike dollar bills; no one’s printing it at all. It’s the real deal. Solid. And interest rates won’t stay low forever.”