2008 Gold Review & Outlook: Jeff Nichols Talks About Gold

American Precious Metals Advisors Gold Review & Outlook – March 2008 JEFF NICHOLS TALKS ABOUT GOLD Published February 25, 2008 Gold’s recent strength has been fueled principally by a surge in investment buying. Meanwhile, positive market fundamentals – having to do with trends in mine production, secondary supply, and fabrication demand – have played a supporting role in gold’s recent strong performance. As important as it is to take a periodic statistical snapshot of gold supply and demand, price developments in the short-to-medium term have less to do with these fundamentals and more to do with market sentiment, monetary policy and inflation trends, geopolitical events, and the resultant changes in investment and speculative demand at the margin. With gold having bounced around the $900 to $950 per ounce, the metal seems poised to continue its upward march as market sentiment, U. S. monetary policy, rising inflation, become increasingly supportive. In my view, gold prices are headed much higher with continued volatility around an upward trend. In fact, there is a high probability gold will break through the psychologically important $1000 per ounce level this year. Don’t be surprised to see gold trade up to $1,100 or even $1,200 before year-end 2008. And – with the right confluence of economic and geopolitical developments – we could see gold spike to $1500 or even $2000 in the next few years. This is hardly an audacious forecast when looked at relative to the upward march in consumer price inflation over the past 28 years. After all, the previous high of $875 an ounce in January 1980– after adjustment for inflation since then – is today equivalent to more than $2200. History Lessons The gold-price spike in 1980 reflected, in large measure, a fear-induced rush into gold prompted by the geopolitical events and economic developments late in the prior decade – in particular the Iranian hostage crisis, the Soviet Union’s invasion of Afghanistan, record oil prices, and skyhigh price inflation. As we begin 2008, fear is creeping back. Fear of a wider war in the Middle East, fear of U. S. military intervention in Iran, fear of higher oil prices, fear that financial institutions are in bad shape following the mortgage-backed bond crisis, and fear of stagflation. Moreover, as refreshing as a new U. S. President and Congress may be next year, some are concerned that they will pursue still more inflationary economic policies. Gold is now appreciating not only against the U. S. dollar – but also in euros, sterling, yen, rupees, and other currencies. In the past, currency synchronization has been a reliable indicator of forthcoming gold-price strength.