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Gold price to churn for the next six months and then rally back to record highs – Wells Fargo

Investors need to be patient when it comes to gold. According to one U.S. bank, the precious metal could continue to consolidate through the summer as markets come to terms with the Federal Reserve’s holding pattern.

In an interview with Kitco News, John LaForge, Head of Real Asset Strategy at the bank, said that he does not expect the Federal Reserve to cut rates until the final months of the year. He added that the market is seeing solid signs that the Federal Reserve’s aggressive monetary policies have reached their limit.

Until then, LaForge said that the market will be at the mercy of its natural ebbs and flows in retail markets. He pointed out that consumers in Asia, led by Chinese and Indian buyers, have been significant drivers for the physical bullion market, supporting prices near-record levels.

However, he added that this momentum could be reaching its limit as these consumers face a combination of elevated gold prices and weaker domestic currencies due to the resilient strength of the U.S. dollar.

“If you’re an Indian consumer, all of a sudden, year-to-date, your gold has become 30% more expensive,” he said. “Generally, what we find with consumers is they don’t stop buying. They just buy a little bit less. That’s why I think gold might churn for a little bit over the next six months.”

According to the bank’s updated mid-year price forecasts, gold prices are expected to trade between $2,300 and $2,400 an ounce. The range is expected to increase to $2,400 and $2,500 an ounce by the end of 2025.

Looking ahead, while some investors are waiting for the Federal Reserve to embark on an easing cycle before they jump back into the gold market, LaForge said that it doesn’t have to be that explicit.

LaForge stated that any kind of liquidity event or quantitative easing would be enough to drive gold prices up to all-time highs.

“It may take one or two years, but the writing is on the wall when looking at interest rates. Rates can’t go much higher,” he said. “Higher interest rates will become a major problem for governments that have to deal with elevated debt levels. There will be pressure to ensure rates don’t start to climb. It’s not just in the U.S. debt is piling up around the globe, which is why you see so many central banks turning to gold.”

Although Western retail investors continue to wait for the right moment to jump into the gold market, LaForge said he doesn’t see that hesitation among official gold buyers. He added that he expects central banks to continue buying gold as there are still years left in this new commodity supercycle.

He explained that in the current environment, nations will continue to diversify into gold to protect their wealth and purchasing power as higher commodity prices keep inflation pressures stubbornly elevated.

“As long as debt is an issue, gold will remain an option on the table,” he said.

While LaForge sees solid potential for gold and silver through 2025, he said investors should maintain a well-diversified portfolio of commodities.

“Essentially, what bull supercycles are about is that there is not enough supply to meet demand. Generally, you can look at it as a tide that lifts all boats, and the worst strategic move you can make is to try to get too cute and pick one asset over another,” he said. “Rule one: own a basket of professionally managed commodities.”

Breaking down a dollar investment in the commodity market, LaForge said that 50 cents should make up the broad basket. With the other half of the investment, he added that investors can get a little more specific.

“Because debt and interest rates are a big part of this particular cycle, if you’re going to be cute, I would do it in precious metals,” he said.

With the leftover 50 cents, LaForge said he would invest half of it in gold and the other half in a mix of silver and platinum to capture some aggressive upside momentum.

LaForge’s bullish outlook on precious metals comes as Wells Fargo publishes its mid-year outlook. The bank’s top analysts have said that while they don’t expect to see a collapse in the U.S. and global economies, now is the time to get a little more defensive.

The bank said that rising geopolitical uncertainty ahead of the November U.S. elections poses some risks for financial markets in the second half of the year.

Looking ahead, the bank noted that interest rate expectations are falling in line with its initial estimates. In December, the analysts said that a potential six rate cuts this year was too extreme. Wells Fargo was looking for around two rate cuts this year.

Source: Neils Christensen Kitco