Gold Could Rise to $2,500 - UBS

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Includes: GLD, UDN, UUP
by: FP Trading Desk

Just how high could the price of gold go? Really high, according to analyst Daniel Brebner and others at UBS Securities. They plotted out a number of scenarios using various levels of strength for inflation and the U.S. dollar, and predicted that gold will not fall below $500 an ounce between now and 2015, and could rise all the way to $2,500 an ounce.

To get there would require inflation at 1970s levels and a weak U.S. dollar, UBS said. The bottom end of the range would require static inflation and a strong dollar.

There is one other possibility UBS raises: what if a new gold standard was adopted to support currencies, particularly the U.S. dollar? Using the current value of the U.S. monetary base and the country's reported gold holdings, UBS calculated a value for gold of $6,948 an ounce. In other words, that is the level gold would need to be at to support the value of the U.S. dollar, given the number of dollars in circulation. If China and Japan are included, UBS predicted that the price would be close to $10,000 an ounce.

But is that really possible? The UBS team noted that a gold standard would theoretically bring some confidence back to currencies and stabilize them. But it would create all kinds of problems by removing flexible exchange rates, and they noted that not much headway has been made in this area.