January 3, 2017
Last year’s big surprise in the world of gold was the failure of prices to move higher. Even strong physical demand for the metal and election-related uncertainties following Trump’s surprising victory could not underpin a sustainable rise in the price. Instead, expectations of higher interest rates, an appreciating dollar, and record-high equity prices held the yellow metal down.
Now, it seems gold may have finally turned a corner . . . with prices for the yellow metal beginning their long march upward, a long march that will eventually carry the metal to new historic highs.
But, even if the latest rally turns out to be another false start, I remain super-bullish for the long term.
As I’ve said many times, I don’t like making short-term predictions about the future price of gold. People who do are usually very lucky or very wrong. In the short run, financial markets, including gold, dance to their own tune – and short-term forecasts, even when based on serious analysis, are often wrong.
That said, I still think there is a real chance the price of gold will recover much of the ground lost since hitting its all-time high near $1,924 an ounce in September 2011.
But the longer-term outlook is another story!
Over the long run, however, fundamentals do matter . . . and, over the long run, we feel increasingly comfortable with our long-term bullish forecast of gold prices rising to unimaginable heights. If not this year, the chances of gold soaring will rise from year to year.
Indeed, contrary to the disappointing experience of the past year, the price of gold is likely to zoom much higher in the years ahead, perhaps doubling or even tripling from recent lows by the end of president-elect Trump’s four-year term.
Here are some of the reasons supporting my audacious long-term forecast:
Strong hands: In recent years we’ve seen a shift in gold ownership from weak hands to strong hands, from American and European hedge funds and other institutional investors to Asian hoarders – both private-sector buyers and central banks.
When sentiment in Western markets turns more favorable toward gold, those investors and speculators who were quick to sell or short the metal for a quick profit on the way down will find it difficult to restore their long positions except at increasingly higher prices.
In other words, a shrinking supply of readily available gold will be insufficient to satisfy rising demand for gold from many of those who not long ago were eager sellers.
Moreover, the contribution to new supply coming each year from global gold-mine production is now shrinking – and is set to continue declining for the next five-to-ten years. Gold mining is a high-risk endeavor with the time from exploration, development of new discoveries or expansion of existing mines, and eventual start of production, a multi-year endeavor.
Asian demand: China and India are, by far, the world’s biggest buyers of gold with each country’s annual demand near or above 500 tons. Despite year-to-year fluctuations, their voracious appetites for gold will continue to grow as their economies grow and their middle and wealthy classes expand.
China’s government is intentionally pursuing pro-gold policies, taking concrete steps to develop its domestic gold-market infrastructure by encouraging the development of domestic physical and futures markets. And, it’s central bank, the People’s Bank of China, has bought, on average, roughly 15 tons each month in the last dozen or so years.
India is a much different market for gold. The yellow metal is deeply embedded in Indian culture and religion – and serves as a vehicle for saving and accumulating wealth in lieu of distrusted Western-style financial institutions. Over the years, the government has tried to discourage gold demand by imposing onerous regulations and import taxes – but the more it tries the more people want to hoard the metal.
The Indian government’s recent effort gain more control over its banking system by recalling 500 rupee and 1000 rupee banknotes will further damage confidence in the government and financial sector – and raise long-term interest in gold as a store of value.
Growing Islamic demand for gold: Another potentially significant source of demand for the metal – with possibly huge price consequences – is the recent relaxation of Islamic Sharia law with regard to gold and the associated regulatory changes that will make possible investment in physical gold and other related assets by millions of religious Muslims around the world who, until now, eschewed gold. Many have great wealth – but strict interpretation of Sharia law has heretofore limited or prevented their investment in the metal.
December 13, 2016
Contrary to expectations, ours and nearly everyone else’s who pay attention to the price of gold, the yellow metal has, since Election Day, shed nearly 15 percent of its value in U.S. dollars. According to the pundits who pay attention to such matters, the election of Donald Trump should have pulled the rug out from under stock prices, hammered ...
November 4, 2016
Regardless of who moves into the White House this coming January, gold prices are set to zoom in the years ahead – in my view, more than doubling during the next President’s term. What many Western investors – particularly Americans – still fail to realize is that investment demand for gold knows no boarders. Indeed, it will be the growth in ...
October 9, 2016
Gold has once again surprised. This time, news from “outside the market” set in motion a chain reaction that knocked gold for a loop. First, the British confirmed the country was withdrawing from the European Union . . . and sooner than most had expected. This triggered an instant devaluation of the British pound and a corresponding rise in the ...
September 22, 2016
I don’t like to make short-term predictions about the price of gold – people who do are usually very lucky or very wrong. But times they are changing . . . and we are entering a new phase in gold-price action where expectations of Fed interest-rate policy will become less important and other, more bullish, gold-price drivers come to the ...
August 24, 2016
I recently sat down with Mining.com to talk about gold and the outlook for the yellow metal. Here's a summary of that conversation: Jeffrey Nichols has been a precious metal economist for over 25 years, so if there’s someone who knows every nook and cranny of the gold market, that is him. Like many others, including American lawyer and author ...