Market sentiment toward gold appears to be moving from outright bearish to "neutral/slightly positive" according to UBS Strategist Edel Tully in a note published late Wednesday.
Tully raised her one-month forecast by $40 to $1,280/oz.
Gold is up 9% this year and by more than $70 already in February to date, the bank said.
Along with a slight change in investor sentiment, Tully said, gold is also being supported by "decent Chinese physical buying after the return from the Lunar New Year -- despite higher prices and what is typically a seasonal lull."
Although the strategist slightly revised the one-month forecast upward by $40, "we're not inclined to chase the market higher here. While we feel that gold has cleared many sentiment barriers, the magnitude of the recent move makes us nervous that tactical players will be inclined to take profits."
Tully sees a "journey down to $1,280 as a buying opportunity. [Further out] we see gold moving towards $1,350 in three months, up from $1,100 previously, as the underlying improvement in sentiment takes further hold among investors, and as gold is increasingly used as a tail-risk hedge. Although we feel gold isn't deserving of a price tag north of $1,400, a price sub $1,200 seems similarly undeserved."
Owing to the rise in the short-term forecast Tully said that "we also raise our 2014 average gold price to $1,300 from $1,200 previously. The large investor sentiment shift that is currently taking place is the biggest driver to this change, but much of this shift is occurring amongst investors with a short-term horizon, and not among the more strategic, long-term players."
For silver Tully lifted the one-month prediction by $2.50 to $20.50/oz and the three-months by $7 to $23/oz.
"Our annual average forecast for 2014 rises to $22.30 from $20.50 previously. We continue to expect silver to outperform gold -- our macro outlook is little changed and we therefore maintain the view that silver should benefit from a global economic recovery more than gold. Consequently, we look for a move lower in the gold:silver ratio," Tully said.
Gold fixed on Wednesday afternoon in London at $1,320.50/oz from a morning fix January 2 -- the first fix of 2014 -- of $1,219.75/oz.
The average price of gold in 2013 was $1,411/oz, down 15% from the 2012 average, according to the most recent data from the World Gold Council.
Silver fixed Wednesday at $21.75/oz from Tuesday's fix of $21.37/oz.
