: Gold guru Jeff Nichols, in his latest presentation to a Far Eastern audience at the Gold Outlook Asia conference in Hong Kong last Thursday, made some very pertinent points regarding gold and the U.S. and global economy – the two being very much interlinked.
On the investment front, the arrival of the gold ETF (GLD) is seen as being perhaps the key market driver in the past few years as huge inflows of gold have been swallowed up by these easy-investment options. He also commented on the Chinese push by state-controlled organisations to make gold a medium for investment for the small saver, which has enormous potential for the market. While he didn’t mention it, India too has been pushing out easy to hold small gold coins and bars via state-owned and private banks, and even the Post Office, for investment by the general populace, which has similar ramifications for the market.
On the future price of gold, Nichols reckons the price will remain dependent for the moment, not on the fundamental supply position, but more on gold’s appeal as a financial and monetary asset – an asset held as a savings medium, store of value, portfolio diversifier, and insurance policy by individuals, investment institutions, and central banks alike.
On historical data Nichols reckons that gold has tended to show strength inversely related to the real (or inflation adjusted) rate of return on U.S. Treasury securities and that today, real “inflation-adjusted” interest rates across a range of maturities are negative . . . so, if history is a guide, we can expect the price of gold to continue moving higher over the next year.
Nichols remains “extremely optimistic” on the gold-price outlook – but believes the metal’s ascent will take several years to reach its next long-term cyclical peak. In the meantime he expects high volatility and a difficult climb, with sharp reversals along the way that will, at times, cause some observers to wonder if the market has already topped out.
But ultimately, “thanks to the extremely expansionary monetary policy – and with a little help from ETF investors, central banks, and new or evolving geographic markets – like China and India – gold will most likely climb into the US$2,000 to $3,000 range – and it could go even higher given the right confluence of economic and political developments . . . or if a late-cycle mania produces a final hyperbolic bubble before the gold-price cycle moves into its next bear-market phase.”
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The investment (GLD) seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.