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Is gold the next big play? Gold price heading to $2,100 - Wells Fargo

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(Kitco News) It is not the time to be disappointed by gold's underperformance versus some other commodities, according to Wells Fargo, which sees gold as the next potential big play.

With high inflation, geopolitical uncertainty and stocks not performing well, more investors are looking for store-of-value type assets. And despite Bitcoin getting most of the attention over the past year, it looks like 2022 could be gold's year, said Wells Fargo's head of real asset strategy John LaForge.

"On the store-of-value front, bitcoin has been getting much of the attention lately, but we think gold may be the next play. Gold's price chart appears to be slowly grinding higher, while bitcoin's price has been stuck in a wide $30K to $69K range for the past 12 months," LaForge said in a note this week.

Without getting too much into the debate about which asset is a better hedge, LaForge said gold is looking to hit $2,100 an ounce by the year-end.

"We believe bitcoin has gold beat in ease of use, storage, and verifiability, but gold can be physically held, is universally recognized, and has had one-quarter of the volatility. In the not too distant future, if bitcoin financial products mature as we expect, investors may choose to own a little bit of both gold and bitcoin for their store-of-value diversification needs," he said. "The bottom line is that we still like gold and are maintaining our 2022 year-end target price range of $2,000-$2,100 per ounce."

The recent underperformance of U.S. stocks has investors worried about returns. And this is when assets like gold and Bitcoin usually come in, LaForge added.

"We believe that investors are actively looking for assets that can add diversification to portfolios. Store-of-value assets, such as bitcoin and gold, are floating to the top of the list, as they have often moved to the beat of their own drummer over the long-term," he said.

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Gold's fundamentals on the supply side are also working in favor of higher prices, pointing to a major rally ahead.

"Supply is dropping below the five-year average, which has been a bullish sign for gold prices historically. Historically, each time this has happened, a multi-year gold price rally followed," LaForge noted. "Clearly, there is no guarantee that this will happen again, but we like the odds that it might."

Overall, Wells Fargo likes gold right now and in the long term. "Gold's recent price dormancy does not spook us. It was one of the best-performing commodities during the last commodity bull super-cycle (1999-2011), and we suspect it could be again this cycle," LaForge explained.

Gold attempted to breach the $2,000 an ounce level twice this year - once in March and then again at the beginning of this week. Both times were unsuccessful, but the important thing was that major support levels were held. June Comex gold futures were last trading at $1,955.00, down 0.20% on the day.

"Since moving to favorable on March 4, 2020, gold prices have gone up 17%, while the Bloomberg Commodity Total Return Index has gained 77%," LaForge wrote. "In our view, the performance difference is more about the average commodity performing unusually well than about gold prices performing poorly."

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