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Wells Fargo Turns Bullish On Commodities, But Gold May Lag Behind In 2019

Kitco News

(Kitco News- Changes in the macroeconomic landscape have turned Wells Fargo’s outlook on metals bullish for 2019.

John LaForge, head of Real Asset Strategy at Wells Fargo, said that the supply-demand fundamentals are in place for commodities, and especially the metals, to rally next year.

“Metals are the one real positive we like above and beyond everything else, particularly silver, particularly platinum. So we like commodities, but we especially like the metals,” LaForge told Kitco News in an interview last week.

Silver has been a laggard to gold this past year, with the gold-silver ratio reaching multi-decade highs of 85.

Gold has also underperformed some other metals in 2018, such as uranium, with the yellow metal down nearly 3% on the year.

LaForge’s outlook for gold in 2019 remains lukewarm because ofthe metal’s relatively high valuation compared to its peers despite its weak performance this year.

“Gold is getting a bid, but it’s not really getting the attention that you really think it would. I think a lot of that has to do with [the fact that] gold’s pretty expensive compared to the other metals, so anyone that wants to give it a bid, they kind of have to look at the other metals first,” he said.

LaForge said that gold is expected to lag behind its peers in the metals space in 2019, and placed a target on the yellow metal of $1,300 an ounce, which would be a 5% increase from current levels.

Spot gold last traded at $1,242.20 an ounce as of 3:00 pm EST.

LaForge noted that another reason for a disappointing year ahead for gold is the fact that we are still in a bear “supercylce” for commodities.

“For anyone that follows commodities, it’s one of these issues where during bear supercycles, it’s all about supply. On the margin, we rise in price just enough and all of a sudden we find all this supply that’s out there. Oil is the best example,” he said.

Crude oil has seen a volatile year, with WTI crude rising to a peak of $76 a barrel in October, before falling 33% to $50 a barrel on Monday.

LaForge attributes oil’s crash in the last two months to a fundamental supply glut in the market, and he extends this assessment to the rest of the commodity space.

“If you peel the layers back and look at supply, there was way too much supply coming on globally. The same thing happens pretty much across the board with commodities. Oil was the poster child this year, but gold still has too much supply. We are producing more gold today than at $1,900 [an ounce] six, seven years ago,” he said.

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