UBS grows more bullish on gold and silver

One of the best performing assets of 2008 is expected to have another good year in 2009. Despite adverse moves in three of gold’s most powerful drivers – a stronger U.S. dollar particularly against European currencies, the sharp decline for crude oil and rapidly falling inflation – UBS has increased its forecasts for gold and silver as it sees both investor and speculative interest boosting prices, even as jewellery demand falls and the U.S. dollar strengthens.

Its gold price targets for 2009 and 2010 move from US$700 per ounce for both years to US$1000 and US$900, respectively. UBS’s silver forecasts climb from US$8.40 and US$8.95 per ounce to US$14.75 and US$12.80, respectively.

“Purchases of physical gold have jumped over the past six months as investors’ fears about the current financial crisis and the possible outcomes from government efforts to support banks and economies have intensified,” UBS strategist John Reade told clients.

The European bank estimates that investment demand will double in 2009 compared to 2007, which will drive gold to an average of US$1000. It expects this safe haven buying to decline in 2010.

Based on the implied returns from these changes, UBS upgraded Agnico-Eagle Mines Ltd., Barrick Gold Corp., Eldorado Gold Corp., Newmont Mining Corp. and Goldcorp Inc. from “neutral” to “buy,” while maintaining “buy” ratings on Centerra Gold Inc. and Franco-Nevada Corp.

The firm also noted that precious metals remain its preferred investments in a commodity context and it anticipates that gold and platinum equities could continue to outperform. It favours names like Impala Platinum Holdings Ltd., Barrick and Goldcorp.