Wednesday, February 04, 2009

UBS raises 2009 gold forecast to $1,000/oz, ups silver, platinum. GDX, AUY, SLW, SSt.v, TNR.v, RMK.v, OK.v, FVI.v, MGN

UBS has raised its average gold price forecast to $1,000/oz for 2009, and
expects the strength in gold to pull prices for silver and platinum up along
with it, the investment bank said Wednesday.
"Purchases of physical gold have jumped over the past six months as
investors' fears about the current financial crisis and the possible outcomes
from government efforts to support banks and economies have intensified," UBS
"We believe that a doubling in investment demand (compared to 2007) is a
reasonable assumption considering the recent inflows into the gold ETFs, where
the past six months of purchases has totalled 8.65 million oz, slightly more
than the full-year inflow of 8.1 million oz into these products in 2007," the
company said.
This figure is also consistent with the reports of physical investment
flows into bars and coins over the past six months and estimates by a UK-based
consultancy GFMS of bar hoarding in the second half of 2008, UBS suggested.
"Based on simple regression modelling we estimate that this will drive
gold to an average $1,000/oz in 2009, from $700/oz previously," UBS said. "For
2010 we have assumed that investment demand will fall back to the already high
levels seen in 2008, which generates a gold price of approximately $900/oz,
and we see the gold price falling back further to $800/oz in 2011."
The company has also raised its silver price forecast for the period,
noting that "compared to gold, silver does not have as wide an appeal as a
safe-haven investment, the metal is not without its adherents: as gold moves
higher, silver tends to follow."
UBS now sees silver averaging $14.75/oz in 2009 and $12.80/oz in 2010,
from its previous forecasts of $8.40/oz and $8.95/oz, respectively.
"The metal's greater proportion of industrial applications has seen
silver underperform gold over the past year ... but a rising price environment
for gold should see silver reverse some of this underperformance," UBS said.
In addition, there are indications from the recent performance of silver
that the metal has been able to lose some of its industrial tarnish, the bank
said, adding that correlations with the copper price - which increased in
2008 as silver fell sharply - have recently declined, while silver's
correlation with gold has increased back toward historical norms.
"Consequently we have made greater upgrades to the silver price compared
to gold," UBS said. "But despite this, silver's historically higher
volatility, especially to the downside during times of correction, makes it a
riskier investment than gold."
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