UBS said Tuesday it was "bowing to the inevitable" and upgrading its
one-month forecast for gold to $850/oz, from $700/oz, but stressed that its
three-month forecast, of $750/oz, was unchanged.

UBS has long maintained that large net gold longs on the COMEX exchange
are a risk, but conceded Tuesday: "As we have seen, positioning alone does
not a correction make," admitting that the past month had been "a frustrating
one for analysts with a fundamental bias."

UBS stressed: "Gold has traded much higher than prices that can be
justified by supply and demand fundamentals and then manifestly failed to
correct lower."

Gold's external drivers of a weak US dollar and strong oil had been
"conspiring" together, to lift gold to its current heights, said the bank.

This motion had carried the yellow metal to within range of the all-time
nominal dollar high of $850/oz, set in 1980, and given recent price action,
the move to that point could happen "sooner rather than later."

If $850 trades, "a scramble for upside could see gold push higher still,"
said the bank.

However, UBS refused to rule out a correction, and warned: "Remember that
after moving from $530 to $730 in about three months in early 2006, gold fell
to $544/oz in five weeks. A large correction from whatever proves to be the
highs looks very likely."

"We caution investors that capturing the expected moves to the upside will
require nimble trading as the risk of trading gold has materially increased
over the past few weeks as liquidity has declined and volatility increased,"
said UBS.

Gold achieved a level of $817.55/oz at the London morning fixing Tuesday.