Diversification benefits of Oil and Gold remain intact – UBS

Investors face fresh uncertainties. Heightened geopolitical risks underline the merits of diversification, economists at UBS report.

Oil and Gold assets will also be supported by market fundamentals

Gold closed at a one-month high of $1,981 an ounce on 20 October, and is up around 8.7% over the past two weeks. Brent rose 1.4% last week to $92.16, following a gain in the prior week of 7.5%, reflecting concern that a broader Middle East conflict could disrupt Oil supplies.

In the case of Oil, the risk that the Middle East conflict could interrupt supplies comes at a time when the global market is already tight. Global demand is continuing to rise, while OPEC+ Oil exporters have been disciplined in constraining supplies.

Gold, meanwhile, should benefit from the eventual turn in the Fed’s cycle, which lowers the opportunity cost of holding non-interest-bearing assets like Gold.