EDITOR NOTE: "Gold supplies have flipped from excessive to deficient," writes Wells Fargo in its latest gold update. In addition to dwindling supplies, Wells Fargo states, low real interest rates, excessive money printing, and a falling dollar will continue to drive gold prices upward. If you read between the lines, the bank is essentially saying that high inflation and low supply are about to collide in a narrowing funnel space of safe-haven demand. Wells Fargo’s turned positive price projection, though restrictively conservative, is $2,200. Now, remember that earlier this month, we reported on Wells Fargo’s entry into the precious metals market, hiring metal traders from Scotiabank to grow its precious metals business segment. The bank is focused solely on corporate clients--manufacturers, chemical producers, and refineries--not hedge funds or investors. So, the bank’s mandate to carefully analyze and project the current state of the gold market is not a matter of speculation but one of industrial need. And right now, they’re seeing the current state of supply as one being dangerously inadequate to satisfy industrial demand, let alone safe haven buying. If you haven’t yet purchased non-CUSIP gold, now’s the time to do it. Because on a global scale, it’s just a matter of time before supply runs dry and prices shoot toward sky-high levels.
Investors could still see some of the strongest price action in gold this year, according to Wells Fargo, which sees signs of a developing rally.
The driver behind this new spark in prices is diminishing supply growth. And it could get gold up to $2,200 an ounce this year, said Wells Fargo's head of real asset strategy John LaForge.
"Gold supplies have flipped from excessive to deficient," LaForge said in the latest update. "Such times in the past have sparked some of gold's strongest price rallies."
Due to "excessive supplies," gold prices have had a difficult time prior to 2018, LaForge pointed out.
"Supply had become excessive in 2011 because gold prices had surged from $250 to $1900 per ounce, during the decade from 2001 to 2011. Many investors were looking for gold during this decade, and they all seemed to find it," he wrote.
However, this picture has shifted in the past three years, with gold supplies moving from "excessive to deficient." This is why Wells Fargo has turned positive on gold.
"Such times in the past have sparked some of gold's strongest price rallies … We believe gold could be on the eve of a new commodity bull super-cycle, which would be only the seventh since the year 1800," LaForge said. "Gold prices have climbed over 40% since 2018, and we believe that more gains lie ahead."
Aside from the supply argument, gold will also be driven by its more well-known trends, including low real interest rates, money printing, and a weaker U.S. dollar, according to Wells Fargo.
"These trends remain largely intact, and we remain gold bulls with a 2021 target range of $2,100 to $2,200," LaForge said.
Originally posted on Kitco