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Gold is in 'penalty box': Wells Fargo explains why gold's next move depends on silver

(Kitco News) The silver market is signaling that gold’s weakness is temporary after the yellow metal’s recent run, according to John LaForge, head of real assets strategy at Wells Fargo.

Cash ends the year up 3.6% at around $24 an ounce. Meanwhile, gold continues to catch up – above $1,800 an ounce and down about 0.4% year-to-date.

“I’m a bit more positive on silver now that we’re back to $23. That’s the high beta game. Silver is showing signs that whatever weakness we see in gold is is likely to be short-lived,” LaForge told Kitco News. “When silver starts beating gold, it’s closer to a bull market in precious metals than the other way around.”

With just a few days left in 2022, markets look exhausted. “Stocks have been down in a straight line. And gold has taken a cue from risky assets like stocks that have more than reacted to the Fed,” LaForge said.

And even though gold followed risky assets, it reacted slightly. “You can feel that gold wants to go higher next year. Gold has had a tough two and a half years,” he added.

Gold is already starting to appreciate in a Federal Reserve pause, followed by a possible pivot. “Over the past two months with all the talk of the Fed pivoting, gold has started to rally. Next year gold and silver will do well. Silver could do even more better,” LaForge noted.

Wells Fargo sees gold between $1,900 and $2,000 next year. “If we can achieve that goal, my bias is to increase those goals,” he stressed.

But in the meantime, gold is still in proof mode. Indeed, while commodities have performed well over the past two years, gold has been stalled. “I need confirmation through the price of gold starting to move. If so, it could go even higher than $1,900-$2,000,” LaForge said.

Silver has a chance to outperform gold next year as it has a high beta and is known to be more volatile than the yellow metal. “On a supercycle, which lasts more than 10 years, as a percentage, silver does better than gold. That’s what happened in the last cycle between 1999 and 2011. It’s typical,” said said LaForge.

Silver could even reach its new highs, above $48 an ounce, in this supercycle, but it could still take five years, according to LaForge. “The new highs are not typical until the back half of the new supercycle. These new silver highs, if they were to occur, would still be five years away. We are only in the third year of this bullish supercycle,” he said.

Top 3 drivers

The Fed’s anticipated pivot is the main trigger for gold and silver prices to rise next year. “That might not happen until the middle of the year. But gold has already reacted positively to markets that price it in,” LaForge explained.

The second driver is the underlying fundamentals, particularly from a supply growth perspective. “You don’t have a lot of growth there, so it just takes a bit of demand,” he described.

The third driver will win gold as a contrarian game. The precious metal has underperformed against other dressers over the past couple of years. This is a sign for some investors to start rebalancing their losses and losses and moving more money into gold while it is still cheap.

“You’ll get investors back on some of these contrarian plays. When you’re in a bullish supercycle, more assets under management start to move into commodities, and that tends to drive the whole market up. group,” LaForge said. And gold hasn’t gotten that yet. Typically, at the end of the year, you buy losers and get rid of winners. This is what will happen with gold. He has been in prison for 2.5 years. It looks very cheap compared to other products. »

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. And the author of this article accepts no responsibility for any loss and/or damage resulting from the use of this publication.

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