Gold - Protect against downside • UBS

Gold
Protect against downside
• Expectations that the Fed will reduce QE, that inflation should not
be an issue and that equity markets seem to be the better place
have burdened the price of gold in recent weeks.
• Investment houses have lowered their forecasts and the technical
chart picture has deteriorated as well – reinforcing downward pressure.
• These uncertainties prompt us to reiterate that gold investors should
protect their positions over the next three months.
Testing USD 1,525/oz
As highlighted in our latest gold report Fragile sentiment published on 4
April, we advise investors to protect their gold positions over the next three
months. The lack of investment demand due to fading inflation concerns
in the Western world, a bias towards more USD strength in the short run
and a bull run in US equities are set to trigger a gold price decline beyond
USD 1,525/oz. Gold also finds no support in the discussion among FOMC
members to taper off – or to halt – the US Fed's quantitative easing program
over the coming quarters. We therefore expect the fragile sentiment of the
yellow metal to continue in 2Q13 with the bias to break below key support
levels.
Recommendation
Although we think that the decline in the gold price is overdone and does
not correspond with our outlook of ongoing negative real interest rates,
even long-term investors should seek out short-term price protection. We
also advise investors to avoid gold as an underlying for yield enhancement
strategies for the time being.
Forecast adjusted
To reflect a lower starting point for our 12-month forecast, we lowered our
long-term gold forecast to USD 1,750/oz from USD 1,875/oz. That said, we
reiterate our message that the developed world still has issues to resolve
that favor debt monetization and money's loss in purchasing power.

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