(Kitco News) - Bitcoins rally to all-time highs above $73,000 per token is helping to fuel golds flight above $2,150 as a growing need for alternative currencies becomes insatiable, according to one market strategist.
In an interview with Kitco News last week, John LaForge, head of real assets at Wells Fargo, said that he expects this is only the start of golds move higher this year. The precious metal has already surpassed his initial year-end target of $2,100 an ounce.
While he is in the process of updating his price target, LaForge said that the journey is more important than the destination.
As to where gold is headed, LaForge said that investors should keep an eye on Bitcoin because the same factors are driving both assets.
Bitcoin is almost shining a light on gold, he said. The closer Bitcoin gets to becoming mainstream the more people realize what it is about. Many investors are starting to realize that maybe the current monetary system isnt perfect and needs to change; maybe all the debt were piling on isnt the best thing for the global economy. Maybe we need to find an alternative to the U.S. dollar.
Although the U.S. dollar is expected to remain the worlds reserve currency for the foreseeable future, Laforge said that it is disconcerting how much debt is being accumulated. According to recent calculations from Bank of America, the nations debt is growing by $1 trillion every 100 days.
LaForge added that along with the trajectory of debt, another concern is that there is no political will anywhere in Washington to change it. He pointed out that Democrats want to increase the deficit to pay for social programs; meanwhile, Republicans want to slash taxes, reducing government coffers.
It doesnt matter how we get there, but make no mistake, we are getting there, he said. Investors are looking at gold again because it really is starting to tell the story again of why money ultimately fails. Because time and time again, no paper money has ever survived time. It may take multiple centuries before that money fails, but it will fail.
Although Bitcoins lofty price gains have attracted more attention than gold, LaForge said that the precious metal has a much longer history as a store of value and lower volatility, which gives it a better edge as a hedge against the U.S. dollar debasement.
While gold is starting to attract attention from retail investors, the biggest driver for gold in the last few years has been central bank demand. LaForge explained that he expects central banks to continue to buy gold at an unprecedented pace to protect their currencies purchasing power. He added that because of the U.S. debt problems, nations want to hold fewer Treasuries.
The debt pile is not getting any smaller, so there is no reason why central banks would stop buying gold, he said.
Although Main Street has been reluctant to jump into precious metals, LaForge said this remains the markets greatest potential for a continued rally. Golds push above $2,220 has been driven mostly by momentum among speculative investors. LaForge said this has been one of the biggest breakouts despite lackluster investor demand he had ever seen.
Investment demand, driven by flows in gold-backed exchange-traded Funds, has picked up in recent weeks but still remains near multi-year lows.
LaForge said that he expects golds next wave higher to be driven by inflows into gold ETFs; however, he added that this wont come until the Federal Reserve unequivocally embarks on a new easing cycle.
At the same time, lower interest rates and higher inflation will ignite a significant rally in gold, he said.
Last week, the Federal Reserve signaled that it still sees the possibility of three rate cuts this year. At the same time, the central bank looks to cut interest rates even as inflation remains above its 2% target.
LaForge said that once investors realize that the Federal Reserve will be unable to bring inflation down to its 2% target, and as consumers get used to inflation above pre-pandemic levels, they will turn to gold to protect their purchasing power.
Disclaimer:The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
Read the original:
Recommendation and review posted by G. Smith
