Originally posted over at MineWeb this is a nice summary of how UBS feels about gold. While they see a number of drivers for the gold price there is no telling when it will all turn around.

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‘Time to warm up to gold?’

This, UBS analysts ask in a recent note, answering as you’d no doubt guess: “Yes.” In making their argument, they raise some interesting questions. In particular: Are the bears over-playing the yield card?

UBS sets the scene of gold’s decline, noting “The prospect of Fed normalising policy has been the main driver for gold’s correction over the past few years.” But UBS takes the position that the market has gone too far, punishing gold ahead of presumed (and now delayed) rate hikes. In this, UBS sees a new – and lower – world order of interest rates coming to bear less than might be expected, which could be seen as good for gold.

“But the possibility that the market may be overestimating the terminal rate suggests that current weak sentiment and price expectations may also be overdone,” UBS analysts write. To UBS this suggests an opening to buy.

“Positioning has declined considerably over the past couple of years and has now become very light. There may be an opportunity, especially for long-term oriented participants looking to diversify portfolios, to rebuild positions at more attractive levels.”

Meantime, UBS points out, as others, to what has so far been solid demand for gold, especially in Asia, it’s primary consumers. Summarizing what seems fairly clear from World Gold Council data from recent years, UBS notes that the easy cuts to demand have been made, driven by investment buyers (coins, bars).

“In contrast, demand which is more linked to cultural/religious traditions seems to have been more stable and we would expect this to continue,” UBS writes.

Indeed, India has long been a mainstay of the market, and in the past decade China, in particular its general consumer, but also the government, has emerged as buyers of more or less equal importance.

UBS turns to a chart of the seasonal buying in India and China (long noted by analysts and observers of the sector) showing that imports of gold typically peter out mid year, as they have this year, but then usually tend to pick as the end of year approaches.

Will this once again prove true with gold prices lower now than at the beginning of the year, spurring a bit of bargain hunting? Maybe not directly related, but it is intriguing that leading precious metal sellers like the Perth Mint have already noted a substantial pick up in coin and bar buying.

So UBS cozies up to gold, seeing a lot of the pain in both the price and equities behind. “Any further downside is likely to be contained, and we expect the market to ultimately find stability, which should provide the foundations for a moderate recovery over the coming years.”

Among miners it names AngloGold, Acacia and Randgold as buys. It also reckons AngloGold Ashanti, Fresnillo, and Hochschild debt is worth a look.