Jeff Nichols Talks About Gold (February 27, 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.
