Wells Fargo Securities’ bull case for gold calls for an eyewatering surge to $8,000, after bullion’s breakdown last month. Gold was among the hottest momentum plays of the year, before its tumble last month following the start of the U.S.-Iran war. In March, gold futures dropped nearly 11% — their worst month since June 2013. But the Wall Street investment bank expects the “debasement” trade — referring to a rise in central banks around the world selling fiat currencies such as the U.S. dollar in favor of a more neutral safe haven — could send the precious metal to new heights. “We’re in the 4th debasement cycle that started in 2022,” wrote Ohsung Kwon, chief equity strategist at Wells Fargo Securities. “Following the recent pullback, gold is now closer to our model’s fair value of $4,500, and all three drivers are likely to suggest further debasement from here,” Kwon added. The strategist said four out of five economic scenarios point to further debasement, and that gold could then rise to $8,000 an ounce by 2027. Spot gold and gold futures were last trading near $4,800 an ounce, implying more than 66% upside. Conversely, Kwon’s bear case scenario points to a decline to $4,000 by year end 2027, a roughly 17% decline from current levels. History of debasements Kwon identified the current cycle using the M2/gold ratio, a measure of the M2 money supply divided by the price of one ounce of gold. The analyst said that measure shows the latest debasement cycle was triggered in 2022, when Russia’s invasion of Ukraine, as well as U.S. interest rate hiking cycle, spurred central banks around the world to ramp up their buying of gold. Prior debasement cycles for gold came during the Great Depression, the Nixon shock — President Richard Nixon’s move to end the U.S. dollar’s convertibility to gold — and the stagflation that followed, the 2000s War on Terror and Great Financial Crisis. Kwon added that debasements last 8.5 years on average, and that the current cycle is not yet halfway through — currently 3.5 years in.
