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Precious metals Preference: neutral Gold (24 Oct): USD 1,7020z (last month: USD 1,764/oz) | Recommendations UBS View (gold) Gold 6-month target: USD 1,875/oz a we 6 ae ld to est it ¢ So far we saw inflows into gold of around 4 million ounces via physically backed ETFs since Bernanke's alltime high in the next three sortie we speech at Jackson Hole. We expect this trend to continue and to lead to an undersupplied market, with : are aware that the metal has alread financial demand also finding its way into gold futures and physical gold bars and coins. sppreciated firmly ahead of the mm e Additional demand support comes from central banks, which are likely to further increase their foreign announcement, which requires an ever reserve allocation to the yellow metal. At the same time the drag from India's jewelry demand is set to fade growing amount of investment demand with an already lower base in 2H11 and a stabilizing Indian rupee. to hold the current upward trajectory. ¢ Securing sufficient investment demand to push prices sharply higher is different from securing the Strategic (1 to 2 years) needed demand over a long period of time, and along these lines we see less support for the price overa6- © To protect investors’ portfolios from month perspective. Secondly, from a portfolio perspective we currently prefer to take some risk off the unorthodox monetary policy measures, table instead of on, and we thus maintain our neutral stance on gold. holding gold exposure is a viable and attractive strategy. Alternatively, we A Positive scenario 6-month target: USD 2,250/oz recommend palladium as well as e Unorthodox monetary policy measures by the Fed start to weaken the USD persistently. Moreover, the platinum. Structural supply issues with risk of a Eurozone breakup intensifies, which triggers a tidal wave of investment demand for gold. regard to platinum and a reduction in & Negative scenario 6-month target: USD 1,450/oz Russian stock sales of palladium speak in favor of PGM exposure, despite higher ¢ A hard landing of China and India or the Fed backing off from the recent monetary policy volatility announcements would be a key drag on the yellow metal. The latter would have the strongest impact. Money created per hour (in mn USD) 60 What we're watching Why it matters Physical demand/supply In the months ahead, with the festive season in India starting and monsoon activity having improved considerably, supporting rural incomes, Indian physical demand is likely to pick up. Key dates: World Gold Council mid- November release. Mining activity in South Africa is unlikely to return to normal in the coming 30 months. Hence, we are closely tracking mining news from South Africa, 20 including the aggregated PGM IP numbers to assess the overall situation. Investment flow In order to see the gold price reaching our target, investment inflows into ss physically backed ETFs need to continue. To gauge investor interest in gold USD created (via QE3 ony) Hale df newcoe? goed Select RS Monetary policy (sector) a build-up in futures positions is likely to materialize as well. per Rour Key dates: 2 Nov US payrolls; 8 Nov ECB meeting, 12 Dec Fed meeting ; ter pleeewers, Une. metres. core ource: , Bloomberg, , as of Oct. Note: Past performance is not an indication of future returns. 2 UBS For further information please contact ClO's asset class specialists Dominic Schnider, dominic.schnider@ubs.com or Giovanni Staunovo, giovanni.staunovo@ubs.com Please see important disclaimer and disclosures at the end of the document. HOUSE_OVERSIGHT_025282