Global Currency Crisis & Gold – What’s Really Going to Happen in 2011 – 2012

Following on from the first 2 parts in this series: Whats really going to happen in 2010 Whats going to happen in 2010/2011 – part II Another great writer and analyst makes it into our categories section, Bob Chapman of Global research with a seminal must read piece outlining the road ahead towards a new [...]

Are Gold & Silver Away Again? – We Think So..

by admin on 01/06/2011

So we’re back at that same point again looking like Gold & silver have definitively bottomed out and Gold at least is heading north again, just like it always does after every correction, Silver may take a little while longer because people are a little intimidated by the desperately manipulated smash-down in the first two weeks of May 2011.

We think that it is once again Gold’s turn in the fast lane for a while and are expecting $1600-$1700 by the end of the year, and we think that it’s about to start now. Once again we are not alone, firstly we highly recommend that you spend 12 minutes of your time listening to the interview here–>

Then we would like to feature this piece by Jeffrey Nicholls from

Gold & Silver: The Long March Upward Resumes

Just a few weeks ago, gold and silver prices were soaring, almost beyond belief.  A growing chorus of investors, analysts, and financial journalists opined that the “bubble” in precious metals prices would soon pop – and many predicted an imminent long-term bear market was just around the corner.

And, when precious metals prices tumbled – gold from its all-time intraday high of $1,576.50 on May 1st to an intraday low of $1,463.20 just four days later and silver from $49.59 on April 28th to $32.44 a couple of weeks later – pundits were quick to declare that the bubble burst . . . and many pronounced that the bull market in these metals was over, done, kaput, much like the end of the world that was also predicted around the same time and similarly garnered much media attention.

As gold and silver rocketed higher in March and April, I warned that prices were rising too far, to fast . . . and chances of an imminent correction were also rising day by day.

So it came as no surprise when gold and silver prices shifted into reverse – but I never doubted that this was anything more than a healthy correction in a long-term bull market, a bull market that had years to go and would ultimately carry gold and silver prices to multiples of their recent highs.

Although gold’s recent correction generated much media attention, from peak to trough it amounted to less than ten percent.  Early in my career as an economist and precious metals analyst, in the midst of a major long-term bull market, I saw the yellow metal retreat some 50 percent from over $200 an ounce in 1974 to near $100 in 1975.  I also remember what followed:  Gold rose by more than 700 percent to a long-term cyclical peak of $875 in January 1980.

Silver’s recent correction, about 35 percent from its April high to its May low point, attracted even more attention because the preceding advance had been so meteoric.  But, like gold, silver saw a number of short-term corrections in the midst of the great 1970s bull market, the biggest fall amounting to more than 60 percent.

What’s a Bubble?

A “speculative bubble” or “financial mania” is generally defined as a rapid run-up or spike in the price of an asset or asset class (equities, bonds, commodities, real estate, or even tulips, for example) caused by excessive or exaggerated expectations of future price appreciation, appreciation unrelated to market fundamentals, realistic trends in supply and demand, or “intrinsic” value.  Bubbles are driven by emotion, fear of “missing the boat” as an asset appreciates, and they are generally characterized by a high volume of trading and public participation.

By this definition, the recent rise in gold and silver prices was hardly a bubble.  While speculative demand by “momentum” traders in futures markets contributed to the rapid ascent (just as selling by the same traders contributed to the subsequent swift decline), these speculators are hardly irrational players driven by emotion.  Quite the opposite, they take long and short positions based on trading algorithms or years of experience watching markets rise and fall.

Instead, the long-term bull market in these precious metals has been, and will continue to be, driven by rock-solid long-run fundamentals including macroeconomic, geopolitical, and demographic trends, as well as each metal’s own supply/demand situation and outlook – all of which suggest gold and silver prices have a long way to go.

This is not to say we won’t see future price volatility in gold – and, even more so, in silver – with price swings that again attract attention, leading some to predict that sharp corrections are the start of a long-term bear market rather than a great buying opportunity like we saw in recent weeks when gold neared $1470 or silver traded under $34 an ounce.

Monetary Assets

Importantly, both gold and silver are monetary assets, a characteristic not shared by equities, bonds, commodities, or real estate.  As monetary assets, they are bought by a growing number of investors and savers who hold and hoard these metals, not only for profit when prices rise, but also, or even more so, as lasting stores of value in lieu of U.S. dollars, euros, Japanese yen, Chinese yuan, Indian rupees or whatever currency circulates in their home countries.  Even central banks are again buying gold as a monetary asset and store of value rather than acquiring and holding more depreciating foreign-currency assets.

Many of those in China, India, and other Asian nations who buy gold or silver as monetary assets, have contributed to higher prices for these metals – but they are not acting irrationally or emotionally.  Instead, as their household incomes rise, they are following the long historical and cultural traditions of their ancestors who over the millennia have held and hoarded these metals as lasting stores of value.

Even in the United States and Western Europe, many are buying gold and silver, not for fear of “missing the boat” and losing the opportunity for quick profit on a rising asset.  Instead, they are reacting to the current economic and political environment that on both sides of the Atlantic, and environment that has a growing number of investors and savers worried misguided government actions and policies are threatening their future economic security and wellbeing.

There is no simple answer or single reason why gold and silver have been moving from strength to strength for more than a decade – irrespective of the occasional price setbacks or corrections that have led some would-be Jeremiahs to foresee the death of gold and silver as worthy investment and savings assets.

Bullish Building Blocks

Over the past many years here on NicholsOnGold, in many public speeches, articles, and client presentations, I have discussed at length some of the building blocks underpinning the long-run bull market for gold and silver – but for readers worried that the world of precious metals, as we know it, is facing an early demise here are the highlights of the bullish case for gold and silver:

  • Current and prospective U.S. monetary and fiscal policies promise further erosion in the U.S. dollar overseas, an acceleration in consumer price inflation at home, and growing demand for gold as a hedge asset. Even with the end of quantitative easing next month, the Fed will feel compelled by persistently sluggish business conditions and high unemployment to keep real inflation-adjusted interest rates low or negative and the economy awash in liquidity. Moreover, despite all the rhetoric from both political parties, Americans will not soon agree to take the tough steps necessary to rein in the Federal budget and shrink the country’s immense Federal debt.
  • Inflation is not only a U.S. disease. It is accelerating virtually everywhere – China, India, Europe, America, Africa and the Middle East – thanks to many years of easy money policies worldwide, high and rising oil prices (in part, a consequence of political unrest and uncertainties in some of the oil-exporting countries) and, for a variety of reasons, rising agricultural and industrial commodity prices.
  • Fear of sovereign-debt defaults and bank failures in one or more of Europe’s “periphery” economies is also prompting many investors and fund managers to buy gold as the preeminent safe-haven asset. These periphery countries – including Greece, Portugal, Spain, and Ireland – continue to pursue self-defeating fiscal policies. Despite tax increases and deep spending cuts, their debt ratings are falling and the cost of refinancing sovereign debt is increasingly prohibitive. Moreover, the stronger “core” countries – led by Germany and France – are increasingly reluctant to bail out their southern neighbors. As a result, the viability of Europe’s common currency, the euro, is increasingly doubtful – and a break-up of the single-currency system would send gold and silver prices sharply higher.
  • Political turmoil across North Africa and the Middle East is prompting an increase in world gold demand – both as a reflection of heightened geopolitical uncertainties and in response to higher oil prices. Civil war in Libya continues and protests are raging in Syria, Bahrain and Yemen. No one knows where this “Arab Spring” will stop, which country may be next, and what the long-term consequences will be for political stability within these countries and throughout the region, or for future world oil supplies and prices.
  • The growing affluence of the emerging-economy nations, especially the two big-population countries, China and India, has already had – and will continue to have – a profound influence on the world gold and silver markets with rising long-term demand and prices of these metals. China’s already huge and growing appetite for gold – both jewelry and investment – will continue in tandem with economic growth, rising personal incomes, worrisome inflation expectations, and pro-gold government policies. Long-term gold demand from India and other traditional Asian gold markets is also rising, reflecting (as in China) growth in personal incomes and wealth, worrisome inflation, and the development of new gold investment vehicles and distribution channels.
  • Increasing central-bank interest in gold will continue to underpin the yellow metal’s price -as countries (such as China, Russia, and some of the OPEC nations) under-weighted in gold and over-weighted in U.S. dollar reserves seek the diversification offered by gold. Mexico purchased more than 93 tons earlier this year, joining a long list of countries that have increased gold holdings in the past couple of years. In addition to China, Russia, India, Saudi Arabia, and Mexico – all big buyers – the list of central banks that have increased gold reserves in the last couple of years includes Thailand, the Philippines, Sri Lanka, Mauritius, Kazakhstan, Venezuela, Bolivia, Peru and probably others that have bought gold surreptitiously and choose not to report an increase in their official gold holdings.
  • A growing recognition and appreciation of precious metals, both gold and silver, as a legitimate investment class is prompting greater participation from both retail and institutional investors in the United States and Europe. At the same time, the development of new products and channels of distribution – especially the growing popularity of gold and silver exchange-traded funds – makes gold and silver more convenient, more attractive, and more accessible to more investors around the world. It is especially noteworthy to see the entry of a number of leading hedge funds, pensions, endowments and insurance companies – some as short-term traders but many as long-term investors with a time horizon often of many years or decades.
  • As demand continues to grow, I expect no more than marginal growth in world gold-mine production for at least the next five years. Moreover, some of the biggest gold-mining nations, like China and Russia, are increasingly absorbing more of their own production for domestic jewelry consumption, investment, and additions to central bank reserves.

Together these bullish factors are responsible for a growing gap between new mine supply and aggregate demand – a gap that can be closed only by much higher prices in the years ahead.

Call it a “bubble” if you will..

..but gold and silver prices are heading higher, much higher, in the months and years ahead. say:


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