Union Bancaire Privée Rebuilds Gold Positions Amid Uncertainty

Union Bancaire Privée (UBP), a Swiss private bank, is gradually rebuilding its gold positions in discretionary client portfolios after cutting exposure to 3% from around 10% in response to the Iran war-induced slump. The bank believes that the long-term outlook for gold remains intact despite the recent downturn.

UBP's decision to rebuild its gold positions comes after the metal tumbled due to fears of higher interest rates and a liquidity squeeze that saw traders offload holdings to cover losses elsewhere. The bank managed around CHF184.5 billion ($233 billion) of client assets as of last year. The bullion positions of institutional and retail investors are now "quite balanced," according to Paras Gupta, Head of Discretionary Portfolio Management in Asia.

Gold Positions Recover to 6%

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UBP is looking to further rebuild its gold positions, consisting mostly of bullion-backed exchange-traded funds, after they recovered to around 6% of discretionary portfolios. Gupta believes that prices will rise to $6,000 an ounce by the end of the year due to structural demand, including central bank buying, concerns about fiscal deficits, and geopolitical tensions.

Despite the recent downturn, UBP's view echoes a slew of investment banks that have recently affirmed bullion's longer-term outlook. ANZ Banking Group Ltd. and Goldman Sachs Group Inc. have projected gold prices to go higher.

Short-Term Risks Remain

However, Gupta warned that the risk of inflation is coming in more immediately, which could weigh on gold in the short term. This is due to the surge in energy prices, which has led to concerns about inflationary risks. Despite this, UBP does not expect a recession in the macro forecast.

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Global Gold Holdings Increase

Recent buying activity has helped bullion claw back some losses. Global holdings by gold-backed ETFs increased by around 20 tons in April following the biggest monthly outflows in five years in March, according to a Bloomberg tally.

Despite this, Gupta cautioned that additional buying requires a lot more clarity in terms of how geopolitical events are playing out. The recent events over the weekend only reinforce the need for more clarity.