UBS says investors should jump at the opportunity of buying gold now

UBS Global Wealth Management on Tuesday advised investors to take hold of the opportunity of investing in gold now. The firm says gold is a “very good hedge” against risks like the upcoming U.S. presidential election.

“We like gold because we think that gold is likely to actually hit about $2,000 per ounce by the end of the year,” said Kelvin Tay, UBS regional chief investment officer. “In the event of uncertainty over the U.S. election and the Covid-19 pandemic, gold is a very, very good hedge. And its recent weakness represents a great entry point for investors.”

Gold prices have exceeded $2,000 this year, setting new high records. Recently, gold prices plunged to $1,880 per ounce but still has much potential for quick recovery.

Tay also said the low-interest rate environment of gold is another factor that makes it an attractive investment to investors. If the interest rates are able to stay low for a little longer as the Fed indicated, then the opportunity cost of holding gold would be “quite low”. Meaning that investors are not forgoing interest that would be earned in yielding assets.

In addition, Tay said investors could consider investing some money into Chinese government bonds as they will soon be included in FTSE Russell’s World Government Bond Index, a major index provider. He said Chinese government bonds yields are 2.5%, which are higher than most regions. U.S. bonds yields are 0.6% and European bonds yields are mostly at negative levels.

“This is really high returns for a very good quality government with very strong balance sheets,” Tay said.

The U.S. election is just five weeks away and there are uncertainties on Wall Street as investors grow increasingly fearful. One of investors’ fears is the intense standoff between President Donald Trump and Democratic nominee Joe Biden which could lead to inconclusive results on the Election day. President Trump has indicated that he may not accept a peaceful transfer of power if he loses the election. If this happens as feared, it would weigh heavily on the stock market, according to UBS.

“A contested [election] outcome is still a possibility, which could add to further volatility and result in safe-haven flows,” said Mark Haefele, chief investment officer of global wealth management in a recent note.

The firm advised investors to buy gold to ensure a safe-haven for their investments if the election results go as suspected.

“Concerns over renewed Covid-19 restrictions, U.S. fiscal stimulus and the ongoing U.S. – China tensions have all weighed on risk sentiment, which traditionally favors safe haven such as gold,” Haefele said.

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