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Nichols muses on gold past, present and future

After 40 years of gold analysis, Jeff Nichols still feels positive about the short and medium term prospects for the yellow metal, even though he avers he is a gold bull but not a gold bug.

Specialist precious metals analyst, Jeff Nichols, who is currently on the bullish side of the argument for gold, although he avers he is not actually a ‘gold bug’, has been involved in the sector now for 40 years having started his career at Citibank in 1973.

His specific interest in gold began when he was tasked by senior management to write a report on the future role of gold in the monetary system – gold was then at $120 an ounce having risen from its fixed price of $35 from when President Nixon had removed the dollar’s convertibility to gold two years earlier.

At the time he felt that the gold price would rise – not because of any likely return to the monetary system, but because the price had been artificially repressed for so long beforehand.

Indeed, few would have believed at that time that the yellow metal would see such a spectacular rise as it did ahead of its 1980 peak and crash, and after the crash perhaps only the true believers felt that it would recover again to the seemingly dizzy $1920 new height achieved a mere one and a quarter years ago. 

Nichols’ views remain somewhat similar today as back in 1973.  He believes that gold will continue to rise overall, but does not see it as likely to resurrect its position as the ‘lynchpin  of the world monetary system.’

Some would disagree with this view and perhaps there has to be the prospect of gold achieving a partial role in a new multiple-based global reserve currency.  We will have to see what transpires in the years ahead as U.S. dollar hegemony continues to be diminished.

What Nichols does see, though, is that gold remains underweighted among the holdings of most individual and institutional investors, and here he sees huge scope for a turnaround in sentiment.

He also takes Central Banks into this grouping with most apex banks remaining heavily underweight in their gold holdings in comparison with the U.S., Germany and Italy for example, although a few are now beginning to rebuild reserves in the light of global economic uncertainty.

He sees this as boding well for gold-price prospects in the years ahead – and as one of the key factors suggesting that the price of gold could easily double by the end of the current decade.

He also is coming to the conclusion that massive paper gold sales are currently distorting the markets, although he sees this as due to short selling by a number of institutional speculators and short term traders out to make a quick profit, while not actually trading in physical bullion.

Again , he sees this as a positive for gold as far as its future prospects are concerned, given that this short term market activity has served to mask the continued tightening of gold’s physical market fundamentals.  Gold is gradually moving into relatively stronger hands of people unlikely to be short term, or even medium term, sellers.

Nichols reckons that the overhang of public and private debt in the U.S., Europe and elsewhere, coupled with Central Bank monetary easing will become increasingly bullish for the yellow metal in the months ahead, but even these are not necessarily the prerequisites for the resumption of gold’s bull market this year and in future years.

Indeed there is considerable evidence that some of Nichols’ views regarding an increasing regard for gold across the investment board is already coming about.  As noted above we have seen Central Banks becoming net gold buyers rather than sellers over the past two years.

Consultancy GFMS puts gold purchases by the central banks as being 536 tonnes last year – the highest level for nearly 50 years – and sees such purchases continuing at a similar rate into 2013.

Gold ETF holdings have remained at near record levels throughout the recent price slips and only last week we heard of a Hong Kong based hedge fund putting one third of its assets into physical gold.

With global gold production flat at best at the moment, and Central Bank and demand from China , the Middle East, India and throughout Asia in particular remaining strong, gold demand fundamentals look like remaining strong in the year ahead.  All should likely lead to further price rises with the recent year-long stutter in the gold price seen as a correction rather than the beginning of the end of the bull market.

To see Jeff Nichols views on gold click on www.nicholsongold.com

 

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