Gold Price Forecast

UBS lifted its 2009 average gold price forecast to $1,000 an ounce from a previous price view of $700, citing expected strong safe-haven demand. UBS said it sees safe-haven demand for the metal tailing off next year, but raised its 2010 gold forecast to $900 an ounce from $700. It also hiked its silver price forecasts, to $14.75 from $8.40 in 2009 and to $12.80 from $8.95 in 2010, saying it expected it to track gold. UBS raised its 2009 platinum forecast more modestly, to $1,050 in 2009 from $900. For 2010, it left its price view unchanged at $1,100 an ounce.

Gold is an Asset

This is the thing, gold is an asset, and like any asset there are two components to value, there is the cash flow you can expect it to generate plus the prospect of selling it for some guess of a price in the future.

How reliable is that projection?

The plot of housing price over/under value lagged two years compared to the price of gold from 1980 to 2008 (28 years) gives a 78% R-Squared. Ok, that’s not 95% and it’s not exactly a long time-series, but at least the projection is within the range of the correlation. Therefore, traders may be hesitant to go long on Gold in the coming week. However, a rise in Gold may only come about in the coming trading week if we see the Dollar continue to decline and the U.S. equity market continues to rally.