Gold rally will fade, and prices could drop to lowest level in almost two years: Wells Fargo

Stephanie Landsman| @stephlandsman Published 13 Hours AgoCNBC.com show chapters Gold rally is on borrowed time, Wells Fargo warns    2:44PM ET Tue, 23 Oct 2018 |01:42

Gold's surge to July highs is creating a bright spot in the market as U.S. stocks struggle.

However, John LaForge of the Wells Fargo Investment Institute believes the rally will trip up investors in a matter of months - if not weeks.

"If stocks get legs, gold will take a backseat like it typically does," the firm's head of hard asset strategy said Tuesday on CNBC's "Futures Now."

Yet, he's not outright discouraging investors from playing the bounce.

"You probably have about a $100 of upside from here," he said. "Unfortunately, you probably have $100 of downside, too."

That would take the precious metal to its lowest level in almost two years.

Gold climbed about 1 percent on Tuesday to close at $1233.20 an ounce. It is now up more than 3 percent over the past two months, but off about 6 percent this year.

"We still have way too much supply even at $1,200 for gold," he said. "The longer term outlook for gold is a little bit more of a sideways trade."

According to LaForge, gold is in a "bear supercycle."

"What that means is we had a period from 2001 to 2011 where gold went from $250 an ounce all the way to almost $2,000," he said. "It brought out all kinds of supply. We had everyone and their mother out looking for gold in the world, and they found it. So, the price of gold has been sinking ever since."

LaForge estimates the bearish period will last another three to five years. He sees choppy trading dominating the environment, with prices predominantly in the $1,050 to $1,350 range.

Not a Scientific Survey. Results may not total 100% due to rounding.