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Gold is still in a 'bear super-cycle,' and it's got five more years of pain to go: Wells Fargo

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Gold and silver have been trapped in a "bear super-cycle" since peaking in 2011, and they could stay there for another five years, according to Wells Fargo Investment Institute strategist John LaForge.

LaForge is bullish on neither but says investors who want to be in the precious metals should consider silver since it has relatively more upside potential and its fundamentals look better.

"We expect another five years or so of the bear, which means capped price rallies, and lots of sideways price action. Gold's range for the rest of the bear super-cycle we suspect will be close to $1,050 to $1,400," he wrote. Silver's range should be $13 to $22, he wrote in a note.

Gold futures were at $1,323 per ounce Friday, while silver futures were at $16.40 per ounce.

Gold peaked in 2011 at its all-time high of $1,900 per ounce, and silver was at a record $50 per ounce.

LaForge said silver should have more upside than gold since it is priced relatively cheaper. Gold is trading at about 76 times the price of silver, twice its historical average at 37 times.

Ratio of gold price to silver price 1833 to 2017

Source: Wells Fargo Investment Institute

Silver is also better positioned from a supply standpoint, with silver production below its five-year average, which is unusual, he noted. The last time that happened was in 1994 when silver prices were near their last bear super-cycle low of $3.56 per ounce, reached in 1993. That cycle lasted from 1980 to 1999, he said.

Source: Wells Fargo Investment Institute

LaForge said excess supplies, based on historical trends, can take a decade or longer to eliminate. Silver is better positioned than gold, based on excess supplies.

Gold production remains above its five-year average.

In the last bear super-cycle, gold production was higher than its five-year average until 2001, which is when prices bottomed and quickly moved into a new bull market.