UBS: Accumulate Metals, Mining Stocks

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"2010 will be a significant year for official gold-sector activity."

UBS Investment Research advises investors to accumulate metals and mining stocks, but also to take their time accumulating, "using the inherent volatility of the market to maximize the risk/reward of their investment."

Analysts Julien Garran, Tom Price and Edel Tully said, "Our preferred commodities over the short- to medium-term are thermal coal, copper, zinc and gold. We still like copper and met-coal longer term."

In their analysis, the analysts said they believe gold's spotlight will return to focus on European sovereign debt burdens and beyond.

"The fear of further debasement of fiat currencies follows closely," they said. UBS also noted 2010 will be a significant year for official gold-sector activity. "While this supply source sold just 41 tons net last year, we expect central banks will move from the supply side of the gold fundamental equation to the demand side in 2010."

Meanwhile, UBS is upgrading its gold price forecasts across all time horizons. They estimate gold will average $1,205 per ounce this year, up from the previously forecast price of $1,129/oz. For 2011, UBS raised its forecast from $1,250 to $1,295. The long-term nominal and real gold price has been raised by 13% each to $1,060 and $934, respectively.

With their expectation that gold will continue to perform strongly this year, UBS is also positive toward silver.

"Like platinum and palladium, silver is exposed to the possible headwinds of a risk adverse environment but we see potential for silver to gain in the role as 'poor man's gold' or the cheaper alternative to the primary safe haven asset," the analysts said.

UBS silver price forecast for 2010 is $18.32/oz., up from $17.74 previously. The 2011 estimate of $19.50 is unchanged. Long-term nominal and real price forecasts are now 5%6% higher at $15.04 and $13.25, respectively.

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