Five reasons Jeff Nichols thinks gold is a steal

Despite reports to the contrary, Jeff Nichols maintains a bullish view of gold and believes it will again hit its record high of $1,227 by mid-year and, $1,500 by year-end

GRONINGEN - 

Gold is still on track to return to its record high of $1,227 by the middle of this year and will head toward $1,500 by the end of 2010.

This is the view of Jeffrey Nichols, Senior Economic Advisor to Rosland Capital and Managing Director of American Precious Metals Advisors. In a recent report, Nichols states that while this view remains intact he does expect "continued volatility with big swings in both directions around an upward trend this year and beyond"

Part of the reason for this belief he says is that "we think the best of the economic news is now behind us, certainly with regard to U.S. inflation rates, consumer spending, and industrial production, is now behind us - and that indicators in March, April, and May will begin painting a gloomier picture of the economy. But, the five main reasons for likelihood that gold will continue its upward trend are:

Inflationary U.S. monetary and fiscal policies

According to Nichols, "the single-most important factor promising higher U.S. dollar-denominated gold prices are inflationary U.S. monetary and fiscal policies". These he says will be characterized by an unprecedented provision of liquidity into the financial system, an extended period of super-low interest rates, huge Federal budget deficits and accumulated debt in both absolute terms and as a percentage of GDP, and "a dysfunctional government that remains incapable of dealing effectively with these immense issues".

An inherently unstable European currency

Nichols says divergent fiscal policies across the continent threaten the future of the euro and the European Union as it now exists.

"Gold's recent rally to record highs in euro and sterling is a sign of the metal's broadening appeal to European investors in the face of European sovereign debt fears.Some investors selling the euro have chosen gold - in addition to or in place of - the greenback as an alternative," he says.

Expanding investor interest in gold

Nichols says that more people and institutions globally are looking ever more closely at gold as an investment option. And, the variety of new investment channels, such as ETFs make this process significantly easier than in previous eras.

Rising central bank and sovereign accumulation

As a fourth reason, Nichols points to the shift in attitude of central banks towards gold, which is now become a significant net buyer of gold after "two decades in which central banks as a group sold on average some 400 tons a year".

Declining world gold-mine production

"Even in the face of sharply rising prices," Nichols says, "global gold-mine will continue falling for at least another few years as existing mines are depleted, ore grades drop, operating depths fall, and the costs of developing new mines rise.

For the full analysis go to http://nicholsongold.com/

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