Gold : Long Term Fundamentals Remain Promising

Regardless of the near-term prospects for gold, the long-term fundamentals promise substantial appreciation later this year and beyond. We remain firm in our conviction that gold prices will touch or surpass $1,500 in 2010 - and continue to move higher in subsequent years.

Gold at recent price levels offer investors and savers without a “core” position in the physical metal an opportunity to buy insurance against the very real possibility of future stock and bond market declines, accelerating inflation and a shrinking dollar, and turmoil in U.S. and world financial markets.

In contrast to what most “mainstream” economists believed only a few weeks ago, the industrial world economy is not improving. Instead, new cracks in the foundation are appearing. Moreover, as we have discussed in recent reports, the U.S. and other industrial economies will soon be heading into a “double dip” with declining business activity, declining consumer spending, declining employment, and declining equity markets.

This is a recipe for stagflation - a prolonged multi-year period of low growth with high inflation. And, as we saw in the decade of the 1970s, the coming stagflation will again be accompanied by a sustained and significant appreciation in the price of gold and its sister metals, silver and the PGMs, to levels that most cannot yet imagine.

The major building blocks supporting a rising gold price over the next few years are:

U.S. monetary and fiscal policies will remain extremely expansionary and, ultimately, inflationary.

Strong continuing central bank demand for gold as more countries strive to diversify their official reserve holdings.

Expanding investor interest in the United States and around the world - with more individuals and institutions viewing gold as a legitimate asset class, inflation hedge, portfolio diversifier, and insurance policy.

Expanding and maturing geographic markets - particularly China, India, and elsewhere in Asia - where incomes and wealth are rising, new distribution channels are evolving, and new gold investment products are better meeting the needs of local populations.

Shrinking global gold-mine production for at least the next five years.


Jeffrey Nichols
NicholsonGold.com
Managing Director, American Precious Metals Advisors
Senior Economic Advisor, Rosland Capital


Jeffrey Nichols, Managing Director of American Precious Metals Advisors, has been a leading gold and precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.