(Kitco News) - As gold prices consolidate near record highs above $2,500 an ounce, one market analyst is warning investors not to try to pin down this market.
In a recent interview with Kitco News, John LaForge, Head of Real Asset Strategy at Wells Fargo, said that gold’s latest breakout move came just after he upgraded his year-end price target to $2,500 an ounce. In this latest push, gold prices have rallied 23% so far this year and have set new all-time highs more than 20 times.
LaForge noted that trying to predict where this rally will end is futile at best. He added that this rally is just the market catching up to the rest of the sector that rallied at the start of the supercycle.
“In the first few years of the gold market, in 2020 and 2021, gold’s performance was disappointing compared to other commodities. Most commodities doubled,” he said. “Gold has finally reacted, and this rally is a big deal for me because it confirms that we are in a supercycle.”
Looking ahead, with gold prices already up more than 20% so far this year, momentum might start to slow down heading into the final months of the year; however, LaForge said that he doesn’t see the trend reversing any time soon.
“Maybe we get some pullbacks, or gold just keeps grinding higher; the bias right now is to the upside,” he said. “While the rally may slow down, $2,500 to me just seems like the next stop.”
LaForge added that one big reason he sees gold’s move as a sustainable rally is that it’s not just breaking out against the U.S. dollar. He pointed out that this year, gold has hit new all-time highs against all major currencies.
Although not an official target, LaForge said that gold could probably hit $3,000 in the next couple of years. That level would be significant as it represents gold’s inflation-adjusted all-time highs. At current prices, gold is less than 20% away from that target.
As to what is driving the market, LaForge said that inflation remains a critical component of the rally, but added that there is a shift in inflation fears. At the start of the supercycle, gold was supported by commodity-driven inflation as prices for things like copper and lumber soared higher as demand outstripped supply.
Although commodity-driven inflation has subsided slightly, LaForge said that investors are now jumping into gold to protect against debt-driven inflation.
“Debt continues to grow, and I don’t see that changing,” he said. “Rising debt could actually drag the supercycle out longer than the 10-year average. I just don’t know how the country pays back $35 trillion in debt.”
While LaForge is bullish on gold, he is not as optimistic about silver. He added that silver can do well as it’s dragged in gold’s wake, but the other precious metal is not expected to outperform.
LaForge said that as a slowing economy weighs on the U.S. manufacturing sector, weak industrial demand will impact silver demand, which will limit its price potential.
“I think we can expect silver to have these short periods of momentum, but for the most part, gold is the metal to watch,” he said.
