Jeffrey Nichols
I recently had the pleasure and privilege of speaking again this year at the China Gold & Precious Metals Summit in Shanghai and to several private seminars organized by clients elsewhere across China. Here’s the text of my presentation:
First My Forecast
Forecasters, whether of the economy, or the stock market, or the gold price are frequently wrong . . . but we are never in doubt. It is up to you – the investor – to listen, evaluate, doubt, and make your own decisions about gold’s future price and the role the metal might play in your own investment portfolio and personal savings plan.
With this warning, let me tell you my own forecast:
I have no doubt that gold will move up sharply in the years ahead, reaching heights that might lead some to label me a “gold bug.” I believe that the price of gold will, over the course of this decade, reach a multiple of recently prevailing prices.
Prices of $3000, $4000, and even $5000 an ounce are very likely during the course of this long-lasting bull market, a bull market that still has years of life left to it.
Not withstanding the recent sharp price decline, I’d be very surprised to see gold dip into “three-digit” territory – that is below $1000 an ounce – ever again.
But, gold prices will remain extremely volatile – with big swings both up and down along a rising trend. In fact, big corrections – such as the decline from the Sept. 6 all-time record high near $1,924 an ounce to the recent low near $1,580 (a decline of nearly 20%) – will lead many investors, analysts, and pundits to declare the death of gold . . . or, at least, the death of the bull market we have enjoyed over the past dozen years.
Yet, historically, a gold-price decline of 20% is not so unusual. At the time of the Lehman bankruptcy in 2008, gold fell by more than 20% and was slow to recover – but recover it did. And, in the 1970s, gold corrected several times by 15% to 20% and once by considerably more – all in the midst of a great bull market.
Moreover, although the US dollar-denominated price of gold is well off its historic high, when valued in most other currencies, the metal’s price remains near its record highs.
The future price of gold is a function of past and prospective world economic, demographic, and political developments. My job for the next hour or so is to briefly review some of these developments and trends – so that you can come to your own “golden” conclusions.
Gold’s Bullish Building Blocks
Let me quickly list the gold’s bullish building blocks – and then, as time permits, I’ll discuss a few of these bullish factors, in somewhat more detail. You will notice that many of these factors are interrelated – but it is easier, for the sake of this discussion, to think of them as separate and distinct.
Together these dozen bullish building blocks have resulted in a notional gap between world supply and aggregate demand - a gap that has been and will be closed only by high and rising prices in the years ahead.
American Economics
Let’s look more closely at some of these bullish factors . . . and let’s begin at the epicenter of the world’s economic earthquake – Washington D.C.
The US economy still faces significant and painful consequences from its many years profligacy, years in which both the government and private sectors simply spent more than we could afford, on things we didn’t need, and, worst of all, with money we didn’t have. Now we are paying the piper – and it will be years before the massive overhang of public and private debt is no longer a heavy burden on the economy.
As a result, the US economy is in the midst of a persistent and prolonged recession – a long-lasting slowdown that is not fully reflected in the official government statistics, not fully recognized by the most-widely quoted mainstream economists, and not likely to go away anytime soon.
Despite a recent pickup in consumer spending, improving employment indicators, and wishful thinking from the White House and many economic forecasters, the US economy remains in the midst of a persistent and prolonged recession or worse.
Normally, a recessionary economy would be countered by aggressive short-term fiscal stimulus – with more government spending and less taxation – to give a temporary counter-recessionary boost to aggregate demand.
But fiscal policy is moving in the opposite direction – and is likely to continue in the wrong direction, making a lasting economic revival even less likely anytime soon... finish reading @Source: ResourceInvestor
Published 12/20/2011
World Economic Trends & the Future Price of Gold - Precious MetalsI recently had the pleasure and privilege of speaking again this year at the China Gold & Precious Metals Summit in Shanghai and to several private seminars organized by clients elsewhere across China. Here’s the text of my presentation:
First My Forecast
Forecasters, whether of the economy, or the stock market, or the gold price are frequently wrong . . . but we are never in doubt. It is up to you – the investor – to listen, evaluate, doubt, and make your own decisions about gold’s future price and the role the metal might play in your own investment portfolio and personal savings plan.
With this warning, let me tell you my own forecast:
I have no doubt that gold will move up sharply in the years ahead, reaching heights that might lead some to label me a “gold bug.” I believe that the price of gold will, over the course of this decade, reach a multiple of recently prevailing prices.
Prices of $3000, $4000, and even $5000 an ounce are very likely during the course of this long-lasting bull market, a bull market that still has years of life left to it.
Not withstanding the recent sharp price decline, I’d be very surprised to see gold dip into “three-digit” territory – that is below $1000 an ounce – ever again.
But, gold prices will remain extremely volatile – with big swings both up and down along a rising trend. In fact, big corrections – such as the decline from the Sept. 6 all-time record high near $1,924 an ounce to the recent low near $1,580 (a decline of nearly 20%) – will lead many investors, analysts, and pundits to declare the death of gold . . . or, at least, the death of the bull market we have enjoyed over the past dozen years.
Yet, historically, a gold-price decline of 20% is not so unusual. At the time of the Lehman bankruptcy in 2008, gold fell by more than 20% and was slow to recover – but recover it did. And, in the 1970s, gold corrected several times by 15% to 20% and once by considerably more – all in the midst of a great bull market.
Moreover, although the US dollar-denominated price of gold is well off its historic high, when valued in most other currencies, the metal’s price remains near its record highs.
The future price of gold is a function of past and prospective world economic, demographic, and political developments. My job for the next hour or so is to briefly review some of these developments and trends – so that you can come to your own “golden” conclusions.
Gold’s Bullish Building Blocks
Let me quickly list the gold’s bullish building blocks – and then, as time permits, I’ll discuss a few of these bullish factors, in somewhat more detail. You will notice that many of these factors are interrelated – but it is easier, for the sake of this discussion, to think of them as separate and distinct.
- The first bullish building block is past and prospective US Federal Reserve monetary policy, characterized by low or negative real rates of interest and unprecedented central bank monetary creation.
- Second, the US federal government budget impasse, rising US sovereign debt, and eroding US creditworthiness.
- The third bullish building block for gold is the expected future depreciation of the US dollar in world currency markets . . . and the continuing decline in the dollar’s purchasing power for American consumers.
- Fourth, the growing insolvency of some European nations – leading to the disintegration of Europe’s Monetary Union and the eventual abandonment of Europe’s common currency, the euro, by at least some of the EU member countries.
- Fifth, the expected acceleration of global inflation – fueled by excessive monetary creation, world population growth, and changing diets in favor of more meat and protein . . . and led by persistently high and rising agricultural and industrial commodity prices from one country to the next.
- The sixth bullish building block for gold is increasing political instability in the Middle East and North Africa . . . as authoritarian regimes are overthrown . . . but sectarian divisions in some countries prevent orderly transitions to democracy . . . with implications for world oil supplies and prices. And then, of course, there is Iran - which remains an unpredictable “wild card.”
- Seventh, the growing affluence of the “emerging-economy nations” and the associated growth in both jewelry and private investment and savings demand for gold - especially here in China - as well as India and other gold-friendly countries.
- My eighth bullish building block – one that I believe is especially important to the long-term development of the gold market – is the affect this rising wealth is having on emerging-economy central banks . . . prompting some countries that are over-weighted in US dollars and underweighted in gold to diversify their official reserves through the prudent acquisition of the yellow metal.
- Ninth, the development and popularity of new gold investment vehicles and channels of distribution - especially gold exchange-traded funds – that facilitate physical gold investment by both retail and institutional investors.
- Tenth, the legitimization of gold as an investment class and rising investor participation . . . together reflecting a growing appreciation of the benefits of including physical gold in a well-diversified portfolio . . . and the entry of new, large-scale, professional investors – including pensions, endowments, insurance companies, sovereign-wealth funds, and especially hedge funds.
- Eleventh, the “stickiness” of much of the recent private sector and central bank gold demand. This is shrinking the available “free float” in the world gold market . . . and it means that less metal will be available to gold-hungry buyers, except at increasingly higher prices. Indeed, many of today’s new investors have no intention of ever selling, even at much higher prices.
- And, twelfth in my catalog of bullish factors supporting a continuing long-term rise in the price of gold is the fact that world gold-mine production, although growing, will not keep pace with the expected growth in global gold demand. Even a rash of new mine discoveries would take five to 10 years - or more - to contribute significantly to supply . . . and, meanwhile, existing resources are being depleted, nationalized by unfriendly governments who tend not to be good mine operators, or are simply mined out.
Together these dozen bullish building blocks have resulted in a notional gap between world supply and aggregate demand - a gap that has been and will be closed only by high and rising prices in the years ahead.
American Economics
Let’s look more closely at some of these bullish factors . . . and let’s begin at the epicenter of the world’s economic earthquake – Washington D.C.
The US economy still faces significant and painful consequences from its many years profligacy, years in which both the government and private sectors simply spent more than we could afford, on things we didn’t need, and, worst of all, with money we didn’t have. Now we are paying the piper – and it will be years before the massive overhang of public and private debt is no longer a heavy burden on the economy.
As a result, the US economy is in the midst of a persistent and prolonged recession – a long-lasting slowdown that is not fully reflected in the official government statistics, not fully recognized by the most-widely quoted mainstream economists, and not likely to go away anytime soon.
Despite a recent pickup in consumer spending, improving employment indicators, and wishful thinking from the White House and many economic forecasters, the US economy remains in the midst of a persistent and prolonged recession or worse.
Normally, a recessionary economy would be countered by aggressive short-term fiscal stimulus – with more government spending and less taxation – to give a temporary counter-recessionary boost to aggregate demand.
But fiscal policy is moving in the opposite direction – and is likely to continue in the wrong direction, making a lasting economic revival even less likely anytime soon... finish reading @Source: ResourceInvestor
