UBS: Global Precious Metals Comment - FJElite
Conversations with various market participants in China revealed acute concerns about the implications of the conflict in the Middle East. From our vantage point, the overall sentiment was quite negative, with a lot of the negative impact to the global macro outlook seen to have already been done, even if there an offramp from the US/lsrael conflict with Iran emerges in the near future. Many of those we spoke with had a cautious view on what recent events mean for the US, focusing on risks of stagflation and a weaker dollar. There was scepticism about quickly markets priced in rate hikes across global central banks, with onshore concerns seemingly more skewed towards the impact of higher energy prices and heightened geopolitical uncertainty on growth.
Concerns about the outlook on global growth, inflation discussed and geopolitical risks likely plays into the continued positive sentiment towards gold. Majority, if not all, of our conversations signalled an upside bias to gold price expectations over the medium to long term. This is not entirely surprising given strong gold demand at the start of 2026 and notable resilience in March. The outlook for Q2 remains constructive, particularly if gold prices stabilise and onshore premium holds. There does not seem to be many bottlenecks when it comes to supply and securing import quotas and permits. Moreover, retail and institutional investment demand is growing considerably amid 1) changes to tax rules introduced last year (which keep investment gold exempt while raising tax costs for jewellery); 2) banks rolling out accumulation plans that are widely distributed via electronic platforms. 3) insurance companies in the pilot program starting to become more active.
Our understanding is that around half of insurance companies that are part of the pilot program allowed to invest up to 1% of AUM in gold have started to become more active. Activities should be reflected in Shanghai Gold Exchange trade volumes, as these are the products they are allowed to trade. SGE turnover has shown an increase over the past few weeks. Mid-tier and/or insurance companies with higher risk appetite we think are the ones that are likely to be more active. This is an encouraging development overall and we think the industry is still some distance from being fully allocated. Long-term upside risks could come from expanding the program to the rest of the industry and/or to other sectors as well as increasing the allowable % to total AUM. For insurance companies that have so far been more hesitant, the lack of expertise and gold’s lack of yield are likely key hurdles.