The strong US dollar is hurting the precious metal’s price, pulling gold to 8.5-month lows. It also undermines gold’s “safe haven” status. But that doesn’t matter for gold, which is still likely to close the year above $2,000 an ounce, according to Wells Fargo. Here are the details…
Wells Fargo: US dollar negatively affects commodity prices
As Cryptokoin.com also reported, the US dollar index rose to its highest level in 20 years. Meanwhile, the US 10-year Treasury yield was at 2.921 percent. August gold futures were flat during the day. It last traded at $1,731.60 an ounce after falling below $1,725 overnight. Wells Fargo’s head of real asset strategy, John LaForge, made a statement on Monday. He said commodities are priced in US dollars. He used the following expressions:
The US dollar has risen 12% since the start of the year. Almost half of that earnings came in last month. Such large movements are extremely rare. But when it happens, commodity prices often suffer. The broader commodity index was also hurt by the higher US dollar and rising recession fears. Demand for industrial metals hurt the outlook.
As the US dollar rises, currencies in developing countries fall, giving them less purchasing power. “This loss of purchasing power could negatively impact commodity demand and commodity prices,” LaForge added. “Given the strength of the US dollar over the past month, it’s not surprising that prices for most commodities, especially gold, have fallen,” he said. Gold fell 6 percent in June due to the strengthening of the US dollar. The precious metal is one of the most sensitive commodities to US dollar price movements, according to LaForge.
Delighting gold forecast from Wells Fargo
Looking forward, Wells Fargo predicts that the dollar will be near its top. He does not expect a significant move higher from the dollar. But for gold to rise, it needs to create its own momentum. LaForge’s year-end gold price target is $2,050 an ounce, which it sees as reasonably achievable given the recession narrative. He added that if no action is taken, he will soon review his year-end targets. LaForge used the following statements:
Gold needs a boost of its own kind to meet our 2022 year-end target of $2,050 an ounce. We’re currently aiming for around 17 percent. Investors can start buying because gold is quite cheap compared to most other commodities. However, we understand that time is running out. That’s why we’re reviewing our goals.
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