Gold: U.S. Investors Start Switching Sentiment: UBS

U.S. investors have finally started to warm to gold, citing an array of bullish factors as the precious metal broke past a key $1,300-per-ounce threshold on Friday.

“Compared to the bearish sentiment that prevailed at the start of this year, U.S. clients are warming to gold,” wrote UBS AG (VTX:UBSN) analysts in a note on Monday.

“That's not to say they're outright bullish -- they're not -- but the sentiment barometer (1-10 range) has moved from an icy 1 or 2 in January to a relatively warmer 5 or sometimes 6,” they added.

“Looking forward, gold should be on the receiving end of more long interest than it has seen for some time, although this will drag considerably behind the norms of previous years.”

But it doesn't necessarily mean that gold prices will soar skyward. The change in the precious metal's trading price has fluctuated within a narrow band of about $50 to $100 over the past several months, from lows of $1,180 per ounce to recent highs of $1,300 or so.

The analysts merely expect the establishment of a slightly higher trading range in coming weeks. They don’t expect a return to the days of gold at over $1,900, in all-time highs reached in September 2011.

Better sentiment, after several weeks with analysts underlining weak or negative gold sentiment, stems from several factors.

Those include: “no expectations for a more aggressive Fed policy; potential for the removal of the 80/20 rule in India; light investor positioning; EM [emerging market] risks; gold's diversification with equities; persistent Chinese demand; constrained mine supply going forward; the need for tail risk hedging; and inflation or deflation risks.”

Nonetheless, investors are hesitant, since they can’t easily forget gold’s painful 2013, where it lost the most in value since 1981.

“It’s all rather tactical, rather than strategic,” UBS’ precious metals analysts Joni Teves and Edel Tully wrote. “Investors aren’t yet prepared to be in gold for the long or even medium haul just yet.”

“But now that U.S. players are putting gold on their radar again, gold has an opportunity to climb, an opportunity that was severely lacking just a few weeks ago,” they concluded.