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Gold price can push to $2,200 as markets drunk on liquidity won't sober up in 2021 - Wells Fargo

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(Kitco News) - Financial markets are drunk on liquidity and investors should not expect that 2021 will be the year they sober up, according to analysts at Wells Fargo. In this environment, precious metals will continue to do well, the bank added.

Tuesday, in its 2021 outlook webinar, analysts at Wells Fargo said that they see a bullish backdrop for financial markets that will lead to more risk-taking. The bank expects to see a robust economic recovery as the world looks towards potential vaccines for the COVID-19 virus.

In its outlook, the bank sees the global economy growing by 5.2% next year, with most of the growth coming in the second half of the year as the world starts to move past the devastating impact of the pandemic.

While the bank is bullish on global growth, they still see plenty of potential for gold prices to rise next year. The bank said that they see gold prices pushing to $2,100 and $2,200 by the end of next year.

John LaForge, head of real asset strategy at Wells Fargo, said that despite robust economic growth, he expects low-interest rates and loose monetary policy to support gold, silver and platinum.

"There's still a lot of money printing going on and that is good for gold and silver," he said.

But gold and silver are being driven by more than just central bank monetary policy. During the presentation, LaForge said that 2020 was the start of a new commodity bull supercycle and gold should also ride this demand wave higher.

"If you look at the carnage, we saw back in March and April, that's the kind of watershed event you need to frankly get interested in commodities," he said. "Right in the middle of it in March, we upgrade commodities. We went favorable for the first time in a long, long time and we expect that to continue into 2021."

Along with gold, LaForge said that he also likes copper and oil. He sees West Texas Intermediary (WTI) crude oil going back above $60 an ounce next year.

While Wells Fargo also likes silver and platinum, LaForge said that they prefer to remain exposed to gold as it has lower volatility and will remain the sector's patriarch.

"For 2021, gold is probably our go-to, it's our favorite. Gold kind of embodies everything," he said.

While the overall outlook remains bullish for gold, the year won't be without risk. Wells Fargo said that the most significant headwind for gold and silver next year could be rising interest rates. The bank sees inflation pressure remaining below 2%, so any rise in nominal yields could lead to higher real yields, which would be negative for gold.

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