The US dollar has been the main culprit holding the gold price this summer. But Wells Fargo predicts the precious metal will end the year at over $2,000.
“The US dollar is what holds the price of gold”
Markets await Fed Chairman Jerome Powell’s keynote speech at Friday’s Jackson Hole symposium. Despite gains this week, gold is still trading below $1,800. At the time of writing, spot gold was trading at $1,764, up 0.75% on the day.
By the way, cryptocoin.com As you can see, the US dollar index (DXY) is at its highest level in 20 years. Wells Fargo’s head of real asset strategy, John LaForge, said that if DXY had not been at its peak, gold would have been around $150 higher than its current levels. Stratesist makes the following assessment:
I’m still surprised that gold doesn’t want to move. The thing holding the gold is the US dollar. Gold would have been closer to $1,900 without the move in the dollar. Gold is still the presence of the chameleon. It has been operating with real interest rates for six months. And just when you understand that, it moves with the dollar. And just when you understand that, it moves with a crisis. For something so quiet, it’s unbelievable how often it changes teams.
If the dollar allows, the year-end target for gold is $2,000.
Wells Fargo’s year-end target remains at $2,000-2,100. However, if the US dollar continues to be surprising on the upside, it is possible that it will not meet this target. Over the summer, the dollar became the popular safe-haven game as other economies grappled with more troubled inflation and growth concerns. According to John LaForge, the US dollar is likely to remain strong for the next six months. In this context, the strategist makes the following statement:
Our base case is that the US goes into recession somewhere in October or November and lasts until the middle of next year. Typically, the dollar loses strength when signals say we’re out of recession. Therefore, if the fundamental situation is correct, it is possible to see the dollar start to behave weaker in the first quarter of next year in anticipation of this. Until then, the dollar will continue to act as this defensive asset.
“It is possible that a mild recession could be beneficial for gold”
A recession for gold doesn’t necessarily mean a bad thing. But it all depends on the type of recession the US will see. John LaForge notes that a slight recession could even be beneficial for the gold price.
On the inflation side, Wells Fargo does not expect price pressures to recede to the Fed’s 2% target. He estimates that long-term inflation will be close to 3-4%. Following Jackson Hole and the Fed’s September meeting, the Fed will adhere to much more restrained rate hikes of around 50 basis points after a series of 75 basis points jumps. However, LaForge says its overall priority will remain in the fight against inflation and makes the following statement:
They won’t change much. You might hear a word or two in Jackson Hole. But the number one concern will undoubtedly be inflation. Maybe we only had one piece of data that showed we had reached the top.
“The last big speed bump for the crypto market is regulation”
Another asset game on John LaForge’s radar is the crypto space after the fourth bear market. “I would argue that with crypto we have reached the point where it has matured enough to prove there is value,” he says. From this point of view, the strategist makes the following assessment:
This is the last major speed bump regulation for the market. And this is likely to become clear in the next year. This will also affect the price. At this point, editing is the number one thing. There are systems that the state wants to control. And money is big money. There is an ongoing fight.
What should the approach of regulation be?
According to the strategist, regulation needs to be light enough to allow critical features such as independence and decentralization to remain at the core of the crypto. John LaForge explains his views as follows:
What unfolds over the next few years is that the government comes in and regulates. The question is how much? Do they take a light-gloved approach, as they do on the Internet, or do they take a heavy-handed approach? You have an example where the internet is lightly regulated. But it was about information and communication. After all, this is important, but indisputably not as important as money. If regulation is light-gloved, it’s an entirely new asset class. And we will find out in the next year. Also, we’ll start to see that in price.
