Gold to hold around $1500-1700/ounce: UBS Equities

UBS Equities Research has recommended a buy on gold and copper in its report. In an interview with CNBC-TV18, Tom Price of UBS Equities Research said that it is a relative call and does not mean that there will be a huge lift in gold.

According to Price, gold will hold around the USD 1,500-1,700 an ounce level and copper price will moderate from about USD 350 a pound to about USD 330-340 a pound for the rest of this year. Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: I see in your report that the top call right now is to buy gold and sell copper. While the sell on copper makes sense given the China slowdown, a buy on gold is interesting, if you could take us through the key strategy at this point?
A: The call really doesn't say that we are expecting a huge lift in gold. We actually believe that gold will probably hold roughly around the USD 1,500-1,700 an ounce level, whereas copper will fall. It is really a relative call.
Gold is going to hold its position and copper will slide lower. The reason behind that is that gold's trading water almost between the potential inflation in Europe. So that's bullish and a rise in US dollar is bearish. Hence, it sort of holds the ground. Meanwhile, in copper we are actually seeing some destocking with China.
We saw some data come out yesterday and since we actually printed that report, it confirms this is where China is entering a period of destocking in copper and that is the fundamental driver of copper price at a global level. While they are destocking, the copper price will fall. So looks like it is playing out so far, two days down the track. Q: Yesterday copper imports from China fell about 17% MoM but despite that alembic copper is down just about 1%. Do you think a lot of these negatives have been priced into copper at this point?
A: Yes, it’s interesting how the markets actually latched onto that data point out of China. They think it's a profoundly bear point, but if you actually put that data point in context, it was around 345,000 tonnes of total copper imports. It was down by about 16-17% MoM.
But it's actually coming from a record high level of March-April-May and it’s really the end of a major restocking campaign in copper that China played out for about 9 months now. It doesn't really concern me that it has come down to about USD 345. In fact, I am expecting that to fall over the next couple of months as that destocking campaign continues.
It should bottom out at around 250,000 tonnes by July-August. This is normal. This happens every year. It’s not the end of the China story, it’s just a name to the seasonal event.
I guess what it means for the copper prices is you should see the copper price level moderate from about USD 350 a pound to about USD 330-340 a pound for the rest of this year through the second half. Q: What do you make of crude? I believe your target is USD 99 a barrel, so you are bullish on crude?
A: I didn't expect we did turn out to be oil bulls. We actually just revised those prices that we have done a couple of weeks ago before this recent price revision. We think about a USD 100 for WTI, about a USD 105 for Brent and right now, both those prices are on a spot basis and are below our forecast.
We got about USD 85 for WTI and just under USD 100-99 for Brent. The short-term drivers have basically undermined this price slightly. We had a big strike event that lasted 15-16 days in Norway. That seems to have been resolved and they can't resume that strike for another couple of years.
The Foreign Minister in Iran has doused the market's concerns down about a blockage in the Strait of Hormuz. That seems to have alleviated some concerns about the supply side constraints. We had a little bit of a negative point come out on the China data on oil imports. Only 5.2 million barrels for June, so that's down about 8% on the peak for this year in May.
All of it suggests that on the demand side and supply side there is probably sufficient oil in the market, given current demand. We would see weaker prices for the next quarter or so.