Gold To Hit $1,350 Level Within One Year On 'Dollar-Mirror Mode' - Wells Fargo
(Kitco News) - Gold’s tight negative correlation with the U.S. dollar will help prices go higher within the next 12 months, according to Wells Fargo, which forecasts weaker greenback to come.
“We see higher gold prices ahead as we expect commodity prices in general to increase and the U.S. dollar to weaken. Our rolling 12-month target price for gold remains $1,250 - $1,350 per ounce,” said Wells Fargo investment strategy analyst Austin Pickle.
October was a very interesting month for analysts, as gold shed its usual negative correlation to the greenback, making gains parallel to the U.S. dollar, noted Pickle.
“Given that the dollar has risen by nearly 1.5% so far in October, one may expect that the price of gold has dropped. But, that has not been the case. In fact, gold was up 3% through October 24. So what prompted this divergence? Fear,” he wrote.
Gold’s October gains were largely driven by the sell-off in equity markets around the world.
“When there is as much equity-market downside volatility as we have seen recently, investors tend to run for the hills into the perceived ‘safe haven’ investments—with the two most popular being Treasury securities and gold,” the analyst said. “This investor reaction is why gold is sometimes referred to as ‘portfolio insurance’.”
But, as equity markets stabilize in the near future, gold is unlikely to fall back down, according to Wells Fargo.
“At that point, gold ‘the chameleon’ will likely switch from perceived ‘safe-haven mode’ to 'dollar-mirror mode’ or ‘commodity mode’,” Pickle explained, adding that he expects to see some U.S. dollar losses in the next year.
Despite this optimistic outlook, gold fell to three-week lows on Wednesday as investor risk appetite improved and the U.S. dollar index advanced 0.16% on the day, last at 97.15. During the afternoon North American session, the December Comex gold futures were trading at $1,214.70, down 0.87% on the day.