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From one of the worst to best-performing assets? Gold price to tackle $2,100 by year-end, says Wells Fargo

Kitco News

(Kitco News) Gold can go from one of the worst-performing assets last year to one of the best in 2022 as some of its main obstacles dissipate, according to Wells Fargo.

After finishing the year down 3.6%, the worst drop since 2015, gold is looking for a breakout rally towards new record highs, Wells Fargo said in its updated gold price outlook.

Some of the top headwinds to gold prices last year were massive risk-on sentiment in the U.S. stock market, higher U.S. dollar, and the idea that elevated inflation was transitory, Wells Fargo investment strategy analyst Austin Pickle pointed out.

“There were some sizable 2021 gold headwinds in play, with the more significant including a blistering risk-on rally with little volatility, a strengthening U.S. dollar, and real interest rates that found their bottom,” Pickle said. “One could also throw onto the pile inflation that was assumed to be transitory for much of the year, surging cryptocurrency prices, and increasingly optimistic investors and economic outlooks.”

However, one of the major shifts this year is the idea that risk assets returns will now be limited or even in danger, with the U.S. stock market already looking a lot more cautious after a January rout.

“Risk asset returns may be choppier with higher volatility this year, which could prompt a rotation back into the perceived safe-haven — gold. The bull commodity supercycle should lend its support as well, as it is the tide that lifts all commodity boats,” Pickle highlighted.

On top of that, Wells Fargo’s U.S. dollar outlook suggests that the greenback’s pressure on gold will let up in 2022. “And our range-bound U.S. dollar outlook suggests that the greenback will cease to be such a stiff headwind this year,” Pickle said.

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These macroeconomic changes are likely to encourage more gold buying throughout the year, according to the outlook. Wells Fargo projects to see gold between $2,000 and $2,100 by the year-end.

“Risks remain, including the possibility of increasing interest rates. Yet, if gold were to breach the technically and psychologically important $1,900 level, we would expect 2022 to be a very good year for gold. Our 2022 year-end gold target is $2,000-$2,100 per ounce,” Pickle noted.

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