Gold price would be $150 higher without the US dollar – Wells Fargo

(Kitco News) The U.S. dollar has been the main culprit for holding gold this summer, but Wells Fargo still expects the precious metal to end the year above $2,000 an ounce.

Despite this week’s gains, gold is still trading below $1,800 an ounce as markets await Federal Reserve Chairman Jerome Powell’s keynote address at the Jackson Hole symposium on Friday. At the time of writing, spot gold was trading just above the $1,752 per ounce level, up 0.22% on the day.

Without the U.S. dollar index at its highest level in 20 years, gold would be about $150 higher than its current trading levels, John LaForge, head of real assets strategy at Wells Fargo, told Reuters. KitcoNews.

“I’m still shocked that gold won’t move. The US dollar is what’s holding gold back. Gold would have been closer to $1,900 had it not been for the move in the dollar,” LaForge said Wednesday. “Gold is still that chameleon asset. For six months it moves with real rates. And just when you figure it out, it moves with the dollar. And just when you figure it out, it moves with a crisis. For something so silent, it’s amazing how often he changes teams.”

Wells Fargo’s year-end target remains between $2,000 and $2,100 an ounce, but if the US dollar continues to surprise on the upside, that target may be unattainable.

Over the summer, the dollar has become the popular safe haven as other economies grapple with more problematic inflation and growth issues. And the U.S. dollar could retain its strength over the next six months, according to LaForge.

“Our base case is that the US will enter a recession somewhere in October or November, which will last until the middle of next year. Typically, the dollar loses strength when signals indicate that we are exiting recession. So if our base case scenario is correct, you could see the dollar start to weaken in the first quarter of next year in anticipation of that,” he said.

Until then, the dollar will continue to act as this defensive asset.

For gold, a recession does not necessarily mean a bad thing. But it all depends on the type of recession the United States will experience. A slight could be beneficial for the price of gold, LaForge noted.

On the inflation side, Wells Fargo does not see price pressures falling below the Federal Reserve’s 2% target. Longer-term inflation looks closer to 3% to 4%.

After Jackson Hole and the Fed’s September meeting, the US central bank will stick to much more measured rate hikes of around 50 basis points, after a series of 75 basis point jumps. But his overall priority will remain fighting inflation, LaForge said.

“They’re not going to change much. You might hear a word or two in Jackson Hole. But no doubt the number one concern will be inflation. We only had one print that showed we We may have peaked,” he said.

Another asset on LaForge’s radar is the crypto space after its fourth bear market. “I would say we have reached the point with crypto where it has matured enough to prove that there is value there,” he said.

The last big speed bump in this market is regulation. And that might clear up over the next year, which will have an impact on the price. “At this point, regulation is the number one thing. There are systems that the government wants to control. And money is a big issue. There’s a bit of a fight going on,” LaForge said.

Regulation must be light enough to allow critical features such as independence and decentralization to remain at the core of crypto.

“What’s looming in the next couple of years is government coming in and regulating. The question is how much? Are they taking a light-hearted approach like they’ve done with the internet or a heavy-handed approach? You have the “example of the Internet being lightly regulated. But that was with information and communications, which is important, but arguably not as important as money,” LaForge pointed out. “If regulation is gloved in light, it it’s a brand new asset class. And we’ll find out over the next year, and we’ll start to see it in the price.”

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 accept no responsibility for loss and/or damage resulting from the use of this publication.

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