Summer Doldrums Queue Autumn Bulls


"June pullbacks bring September bounce backs."

Mineweb, Dorothy Kosich

UBS has lowered its one-month gold forecast from $1500 to $1475, but raised its three-month forecast from $1400 to $1600.

Dr. Edel Tully of UBS Investment Research recently wrote, "We are bullish on gold's prospects for the rest of this year, but would not rule out a pullback over the summer months."

"There are three major reasons why we think gold could reverse," she said. "1) the end of the Fed's QE2, 2) the traditional seasonal slowdown, and 3) the potential for gold prices to tumble during an extreme risk-off event when cross-asset correlation is high."

"However, we think that any foray to the downside will be short-lived as dips will be well supported," Tully stressed.

In her analysis, Tully said that UBS believes gold already have experienced its lower for this year on Jan. 28 when the gold price dropped to $1308.

"Second while investors are reluctant to buy gold right now as it trades close to the record highs of $1577, there is certainly investor money waiting on the sidelines for a pullback below $1,500," she suggested. However, UBS advises that some of gold's perceived end-of-QE2 risk may already be done. "Importantly, rather than the potential for QE3 fully driving gold prices in H2, there's the threat that real interest rates might remain entrenched in negative territory across many regions."

"Third, gold would be supported if the European debt crisis stumbles along without a solid solution. The same is true of the U.S. fiscal situation," Tully observed.

"Finally, while this is not strictly the traditional season for many physical markets, we still except physical demand to accelerate below $1500, form the current 'average' volumes," Tully advised.

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