Wow, in a positive change of events, UBS has suddenly called for $2,500 gold AND recommended exposure to gold. I believe what is left of the gold cartel, JPM, HSBC and Mitsubishi are meeting this month to discuss certain issues. The stress on this group must be reaching critical and intolerable levels.

Regards - VHF

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Q-Series On Gold

Where could prices go?

We believe that the current environment is one which can best be characterised as having a 'low margin of error' for central bankers; with the prospects for deflation/inflation as becoming more extreme. The high potential for policy error is generating considerable interest in certain assets which are perceived as 'stores of value' including gold.

Our econometric model indicates upside risk

Using a proprietary econometric model we have generated a probability cone for the future possible price path for gold. Using different environments for the level of inflation volatility, US dollar and absolute level of inflation we have determined that future returns on gold are likely to be positively asymmetric, with potential upside to US$2,500/oz.

Exposure to gold recommended

Our asset allocation team has moved gold to overweight from neutral. Given the broad uncertainties in the current macro climate we believe that investors should look to gold given its historic tendency to act as a hedge against these risks.