Investors in gold need to be patient, according to Wells Fargo & Co. As the market gradually adapts to the Federal Reserve's maintenance strategy, gold may continue to consolidate throughout the summer. #GoldTechnicalAnalysis#
John LaForge, head of physical asset strategy at the bank, said in an interview with Kitco News that he expects the Fed to cut interest rates until the last few months of the year. He added that the market is seeing clear signs that the Fed's aggressive monetary policy has reached its limit.
LaForge said that the market will be influenced by the natural fluctuations of the retail market before that. He pointed out that Asian consumers have always been an important driving force behind the physical gold market, supporting gold prices close to historical highs.
However, he added that the momentum may be reaching its limit due to the dual pressures of rising gold prices and a strong US dollar leading to weaker domestic currencies for these consumers.
"If you're an Indian consumer, gold prices have suddenly risen 30% this year," he said. "Overall, we find that consumers haven't stopped buying. They're just buying a little less, which is why I think gold prices may fluctuate in the next six months."
According to the bank's latest mid-year price forecast, gold is expected to trade between $2,300 and $2,400 per ounce. By the end of 2025, this range is expected to rise to $2,400 to $2,500 per ounce.
Looking ahead, although some investors are waiting for the Fed to start a loose cycle before returning to the gold market, LaForge says there's no need to be so clear.
LaForge said any form of liquidity event or quantitative easing is enough to push prices to historic highs.
"It may take a year or two, but as far as rates go, the situation is clear. Rates can't go any higher," he said. "The rise in rates will be a major problem for governments with high debt levels. Governments will be under pressure to ensure that rates do not begin to rise. This is not just happening in the United States, but debt levels are increasing globally, which is why you see so many central banks turning to gold."
Despite Western retail investors still waiting for the right time to enter the gold market, LaForge says he doesn't think official gold buyers will hesitate.
He added that he expects central banks around the world to continue buying gold, as this new super commodity cycle has a few years left.
"As long as debt is a problem, gold will still be a choice," he said.
Although LaForge believes that gold and silver will have tremendous potential by 2025, he says investors should maintain a diversified commodity portfolio.
"Essentially, the essence of a bull market super cycle is that supply is insufficient to meet demand. Generally speaking, you can think of it as a tide that raises all boats, and the worst strategic move is to try to be too cautious and choose one asset over another," he said. "The first rule: hold a basket of professionally managed commodities."
LaForge said investors could be more specific when investing in the US dollar in commodity markets.
"Because debt and interest rates are important components of this particular cycle, if you want to be clever, I would choose precious metals," he said.
LaForge said he plans to invest 50 cents, half of which will go into gold and the other half into silver and platinum in order to capture some positive upward momentum.
At the same time as Wells Fargo Investment Bank releases its mid-year outlook, LaForge is optimistic about precious metals. The bank's top analyst says that while they don't expect the US and global economies to collapse, it's time to take more defensive measures.
The bank said that as geopolitical uncertainties intensify before November's US election, there are some risks to the financial markets in the second half of the year.
Looking ahead, Wells Fargo Investment Bank noted that its interest rate expectations are in line with its initial estimates. Analysts said last December that six rate cuts would be too extreme this year. Wells Fargo Investment Bank expects interest rates to be cut about twice this year.