Gold Could Jump To $1,400 But Wells Fargo Still Advises Not To Buy
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(Kitco News) - Wells Fargo said that gold could hit $1,400 an ounce soon, but still cautioned investors from buying the precious metal at current price levels, noting that the metal’s downside potential is much higher than its upside.
"It wouldn’t shock us to see gold make a quick run at $1,400 first, before it starts heading lower, toward $1,200,” Wells Fargo head of real asset strategy John LaForge said in a note. “Our bottom line was that gold looks expensive at $1,340.”
At the end of the day, gold does not offer a really good risk/reward trade-off at the moment, according to LaForge. “With roughly $60 of potential upside (to $1,400), and $140 of possible downside (to $1,200) … For serious long-term buyers, we say wait for much lower prices, probably sub-$1,200,” he noted.”
The short-term direction of gold prices will be controlled by the U.S.-China trade spat, which eventually will be resolved, rendering all the short-term gains or losses as only temporary, LaForge pointed out.
“To be clear, we do not recommend buying gold today based upon U.S.-China trade deal fear. We believe that a trade deal between the U.S. and China will get done—and that once the trade fear fades, so will gold,” he wrote.
However, in a case of a no-deal scenario, gold stands to benefit, Wells Fargo highlighted, pointing to the metal’s price movements in May.
“Should news of a deal drag on over time, we suspect that gold prices could continue to leak higher. After all, it was the May news that the Chinese were backing away from the trade table that sparked the drop in the Chinese yuan (orange line in the chart below), and the rallies in alternative currencies, such as gold (yellow line) and bitcoin (grey line),” LaForge stated.