As reported by Morningstar, UBS strategist Joni Teves believes that the shorting of gold (GLD) “should ultimately be supportive” for the metal and allow “ample space for positions to be rebuilt ahead.” While UBS has lowered its expectations for gold prices in the third quarter, it kept the average for the full year unchanged. The bank expects a recovery in prices in later months.
You can read Gold Short Positions Still Growing: Short-Squeeze Rebound Ahead? for more on the record short positioning in gold currently.
Bank of America Merrill Lynch
According to Business Insider, Bank of America Merrill Lynch (or BAML) chief investment strategist, Michael Harnett, says that gold prices (IAU) have weakened in 2018 along with emerging market (EEM) currencies as the US dollar (UUP) has strengthened while US interest rates (TLT) remain attractive. He believes that with record short positioning, short squeeze risk rises, which could propel gold prices higher.
BAML expects gold prices to climb above $1,300 per ounce by the end of 2018. It’s also forecasting gold prices to reach $1,380 per ounce by 2020.
TD Securities expects “a considerable boost” to precious metals later this year as the US dollar rally tops out. The firm also expects a record number of short positions for gold to unwind, resulting in a significant increase in its price. According to TD analysts Bart Melek, Ryan McKay, and Daniel Ghali, “As dollar strength lets up, focus will return to the flatness of the yield curve and speculators will have record amounts of bearish positions to unwind, providing a considerable boost to precious metal prices.”
TD Securities further adds that the Federal Reserve’s wrapping up of the rate hike cycle next year could also support an increase in gold prices. However, that does not mean that analysts don’t expect short-term pressure from a stronger dollar.
Like many other analysts, Commerzbank also believes that gold is poised for a short covering rally. It just needs a trigger, which would result in short covering. It added that due to the weakness in gold in 2018 despite growing political and economic uncertainties, many people have started to question its safe-haven status. They say “we wouldn’t go that far.”
To justify this, the bank’s analysts added that after the financial crisis hit in 2008, gold prices initially lost $200 per ounce as the US dollar (USDU) strengthened only to rise to $1,200 per ounce by December 2009. The bank expects gold prices to recover to the $1,300 per ounce level by the end of the year.