Quantum Pranx


Nine main reasons to push gold, and silver, higher and higher

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by Lawrence Williams
Originally posted 15 Sep 2010

Gold expert Jeff Nichols, in a speech last week in Bangkok, Thailand, put forward nine main reasons for gold to rise and continue to rise in the short, medium and long term before, eventually,  the bull market will end and the bears may have their day – but he sees this as a long way off yet.

Nichols reiterated his predictions on the gold price which, in the short term, could even be considered conservative in the light of yesterday’s breakthrough to new highs as buying pressure exceeded that of profit-takers and those whose interests may otherwise lie in keeping the gold price down. He believes, he said, that “before long, we will see gold hit $1500 an ounce  possibly even before the end of this year… or during the first half of 2011.” And followed with “Not only will prices move substantially higher in the months ahead – but the uptrend still has years to go… with gold very likely reaching $2,000 and eventually $3,000 or even $5,000 before the gold-price cycle shifts into reverse.”

The nine major points which bring Nichols to this conclusion are as follows:

· First, inflationary U.S. monetary and fiscal policies – past, present, and future  along with a recession-like economic performance – a “double dip” or worse for years to come.

· Second, Europe’s simmering sovereign debt crisis, which has not only undermined the euro’s appeal as an official reserve asset… but has also pushed the European Central Bank to pursue inflationary monetary policies… and has pushed more investors in Europe and around the world to seek the safety of gold.

· Third, continuing – if not growing – interest by the official sector. In particular, the central banks of a number of newly industrialized emerging nations are seeking to diversify official reserve assets into dollar alternatives.

· Fourth, rising long-term saving, investment, and jewelry demand for gold from China, India, and other gold-friendly nations enjoying healthy growth in business activity and household incomes – growth that is likely to continue at least several years.

· Fifth, rising private-sector investment demand in the older industrialized nations reflecting fear of inflation, currency depreciation, and a loss of confidence in governments to deal effectively with today’s economic challenges.

· Sixth, the continuing maturation of what I call the “gold-investment infrastructure” – in other words, the development of new gold-investment products and channels of distribution in many important geographic markets.

· Seventh, the relatively small size of the world gold market compared to other capital markets – such as equities or currencies – so that even small shifts in portfolio preferences away from currencies, or equities, or real estate, for example, may have little price effect on these big markets but will have a relatively large, indeed profound, effect on gold.

· Eighth, the recent onset of global food and agricultural inflation.

· Ninth, stagnant world gold-mine production for the next five years or longer.

In his speech, Nichols went on to discuss all these points in detail, to back his conclusions and all his comments are far too comprehensive to cover here, but if you’d like to read the full text it is available on www.nicholsongold.com

As well as discussing gold, Nichols went on to talk about silver which, unlike gold, has still not managed to surpass the $21 an ounce level seen in 2008 before the huge market downturns (although its getting pretty close) – and is still hugely below its $50 all-time high of 1980 when the Hunt Brothers unsuccessfully tried to corner the silver market which makes this an anomalous situation. His main conclusion was as follows: “I suspect silver’s underperformance has now run its course – and we can expect the white metal to outperform gold over the next five to ten years. For one thing, a number of new end uses for silver are likely to boost industrial demand while investment demand for silver will continue to (increase due to) many of the same forces benefitting gold.”  again to read his full reasoning on his conclusions on silver see his website.

Overall, a pretty bullish presentation. Maybe over optimistic from the gold and silver investor point of view, but there are plenty of informed commentators out there who feel likewise – and quite a few detractors too. The economic scenario painted by Nichols, and as noted above this in itself is not a very controversial view, does suggest that precious metals could be major beneficiaries of a flight from ongoing risk, and turbulence in the currency markets which seems to be even seeing central bankers turning to gold as a reserve asset again – despite a long held feeling, perhaps stemming from Keynes’ often misquoted ‘barbarous relic’ comment – that it should have no such place in a modern economic system.  But, as witness the present situation they still find it hard to come up with a workable alternative over the long term.


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