With gold having struggled throughout much of 2018, it’s easy for analysts to take a bearish view of the world’s most popular precious metal. However, John LaForge, the Wells Fargo Investment Institute’s head of real asset strategy, has flipped bullish on gold – and his reasons actually appear to carry some weight.
While I’m not necessarily a fan of Wells Fargo’s business practices, I’m always willing to listen to expert opinions on precious metals – as long as they’re backed up with compelling evidence. In the case of John LaForge’s perspective on gold going forward, there’s enough credibility there (in my opinion, at least) to brighten gold’s outlook as a growth investment in 2019.
After a solid year of gains in 2017, gold (when priced against the U.S. dollar) underwent a setback throughout most of 2018, testing the patience of investors:
Gold price historical chart. Courtesy of macrotrends.net
Despite trade tensions and other reasons to worry about the stock market throughout the year, gold just couldn’t get a solid footing in 2018. Unfortunately for investors in the precious metal, gold has slipped 8% against the U.S. dollar this year so far, thus losing much of its gains from 2017.
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LaForge, however, offers a glimmer of hope for gold bugs. He, like some other analysts, cites the U.S. dollar’s strength in 2018 as the main reason for gold’s decline. But now that the dollar is hitting its 52-week high, Laforge suggests that “the dollar is a little too high. It has to back off.”
Because gold and the dollar compete with each other as safe-haven investments, they tend to move in opposite directions. Therefore, as the dollar backs off from its peak levels, this is likely to provide a positive catalyst for gold.
Moreover, gold is looking especially attractive at the moment, with its unusually depressed price – and with the major stock market indexes and particularly the NASDAQ contracting sharply in recent weeks:
NASDAQ price historical chart. Courtesy of macrotrends.net
The Wells Fargo analyst offers encouragement for gold investors during times like this: “When your stock corrections are in the 10 to 15 percent level, which is kind of what we’re in now, what we often find is that investors go out and search for some kind of insurance… They typically will buy gold – even on a bounce in stocks.”
Additionally, LaForge provides a big-picture perspective for gold investors at the current price level: “$1,200 is not so bad when you look around at all these different assets prices getting crushed.” In fact, LaForge expects gold to reach $1,300 an ounce within the next 12 months, which would be gain of 8% from its current price.
Because gold tends to be viewed as the leader among precious metals, I would expect silver, platinum, and palladium to follow in gold’s footsteps if LaForge’s projection comes true. And beyond all expectations of price appreciation, one can simply buy and hold precious metals as a hedge against geopolitical risks and a shaky stock market – it’s never a bad idea to hedge one’s bets during these times of global uncertainty.
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