UBS says buy gold heading into the 'far-from-certain' election

Published Mon, Sep 28 202010:03 AM EDT

(This story is for CNBC Pro subscribers only.) An uncertain election ahead makes it a good time to buy safe haven gold, according to UBS. Despite a recent pullback in gold prices, UBS said the thesis for buying gold remains strong, especially with the looming election standoff between President Donald Trump and Democratic rival Joe Biden, the Wall Street firm said. "A contested outcome is still a possibility, which could add to further volatility and result in safe-haven flows," UBS chief investment officer of global wealth management Mark Haefele told clients. The firm said the "far-from-certain" U.S. election is a main reason gold could rally from its current levels. Gold is a safe haven asset that performs well during times of economic uncertainty. With the election just five weeks away, and the first presidential debate on Tuesday, investors are weighing whether a Trump or Biden White House is better for the markets and the economy. Generally, Trump is viewed as the pro-business candidate as Biden has vowed to raise corporate taxes; However, Trump's volatile relationship with China is also seen as a threat to the market. "Our UBS US Office of Public Policy sees the most likely outcome of a Blue Wave (50%) followed by Trump with a divided Congress, i.e., the status quo (35%)," the firm said. Gold prices fell more than 4% last week, their worst weekly decline in six weeks, mainly due to the strength in the U.S. dollar. UBS said that rather than the move in gold implying further decline, gold's fall is a temporary correction and the long-term cases for the yellow metal are intact. "Concerns over renewed COVID-19 restrictions, US fiscal stimulus, and ongoing US China tensions have all weighed on risk sentiment, which traditionally favors safe havens such as gold," Haefele said. Gold prices have soared in 2020 amid the coronavirus pandemic, which caused recession with high unemployment levels. The precious metal topped $2,000 per ounce for the first time ever in August. UBS also said the support of the Federal Reserve, with interest rates near zero, will also continue to bolster strong gold prices. "With this gridlock ongoing, we acknowledge that the Federal Reserve will remain accommodative," Haefele added. "Alongside its commitment to keep rates on hold for longer, we think it is likely that the central bank will increase its Treasury purchases and focus on longer-dates bonds. This should limit any technical rise in nominal rates." Gold prices fell slightly on Monday. — with reporting from CNBC's Michael Bloom.

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(This story is for CNBC Pro subscribers only.)

An uncertain election ahead makes it a good time to buy safe haven gold, according to UBS.

Despite a recent pullback in gold prices, UBS said the thesis for buying gold remains strong, especially with the looming election standoff between President Donald Trump and Democratic rival Joe Biden, the Wall Street firm said.