'No Signs of Overheating as Gold Surges Higher,' Says Rosland Capital's Senior Economic Advisor Jeffrey Nichols

Sep 21, 2010, 11:40 ET from Rosland Capital LLC

NEW YORK, Sept. 21 /PRNewswire/ -- Jeffrey Nichols, Senior Economic Advisor to Rosland Capital (www.roslandcapital.com), had the following commentary based on recent market activity and the week ahead:

With gold prices nearing the psychologically important $1300 an ounce -- a price that just a few weeks ago most gold-market pundits did not think possible this year -- we reiterate our long-held view that gold could touch $1500 by the end of December or, failing that, during the early months of 2011.  

As gold and silver prices continue to surge higher, one frequently asked question is "Why?"  The answer, and I don't mean to be facetious, is simply, "There are more bulls than bears ... more buyers than sellers!"  It's that simple.

In recent weeks, growing economic uncertainties about the U.S. and Europe have boosted investor interest, not only among Americans and Europeans, but private investors and central banks everywhere.  

Many investors now seeking shelter in precious metals investments are expecting more worrisome news in the weeks ahead about the following:

  • The sluggish U.S. economy and further easing of Federal Reserve policy;
  • America's upcoming Congressional elections that may leave government even less able to deal with its exploding debt;
  • Which European countries or banks will next on the verge of bankruptcy, requiring more bailout money from the European Central Bank; and
  • Prospects for the U.S. dollar and the euro, Europe's single currency, as private investors and central bankers alike look for alternatives and seek the safety that only gold can offer.  

These are legitimate concerns that will not quickly go away and are likely to continue supporting the rising gold-price trend for some time to come.  

No Signs of Overheating

Recent indicators suggest that moderate -- but not overheated -- investor purchases of bullion coins and small bars continue apace.  In addition, gold-exchange traded funds, which, in the aggregate, had seen some redemptions, in July and August have risen modestly so far this month.  

Meanwhile, judging from the latest data from the U.S. Commodity Futures Trading Commission (CFTC), the speculative long position on COMEX, the U.S. gold futures market, does not look excessive and, thus, vulnerable to the sort of selling that often triggers an end to major advances in the metals price.  

At the same time, in India and other markets where a quick run-up in the metal's price often triggers dishoarding of small bars, old jewelry, and working inventory at local jewelry shops and manufacturers, we have not yet seen any large-scale sales of the magnitude that would weigh heavily on the world gold price.

Instead, these markets are adjusting to higher prices rather quickly, suggesting these players do not sense gold is overpriced and ripe for a correction -- but rather see strong underlying demand in their local markets.  

Traveling in Southeast Asia last week, I found great skepticism that the U.S. and Europe are on the right economic tracks to deal effectively with their current economic problems.  This view was matched by optimism about economic growth throughout Greater China and India, growth that will support continued rising demand for gold jewelry ... and as a culturally preferred repository for long-term saving.  

More Central Bank Buying

Coincidentally, my visit to Thailand, a very gold-friendly nation with a strong historical and cultural relationship to the yellow metal, was met with news last week that its central bank has been quietly buying gold in the open market, joining a growing list of countries that have been adding to their official gold reserves in order to reduce the risks associated with their U.S. dollar-denominated holdings.  

Official central bank interest in gold is gaining momentum -- with China, India, Russia, Mauritius, Sri Lanka, the Philippines, Kazakhstan, Venezuela, Saudi Arabia, and even Bangladesh reporting gold purchases in the past year or two.  Add to this at least a few other central banks and sovereign wealth funds that have bought gold but have so far preferred not to publicize their purchases.  

In many of these countries -- China and India in particular -- news that the government likes gold and wants to own more provides an official endorsement that encourages private citizens to buy more as well.

Thus, central-bank gold purchases not only affect the underlying supply/demand fundamentals in the world gold market, but also encourages private long-term investment and savings demand in these local national markets -- and is probably one factor now contributing to the muted resale of old gold back to the market in response to the historic high price levels in the past few weeks.  

To arrange an interview with Jeffrey Nichols, please contact Liz Cheek of Hill & Knowlton at (212) 885-0682 or elizabeth.cheek@hillandknowlton.com

About Rosland Capital

Rosland Capital LLC is a leading precious metal asset firm based in Santa Monica, California that buys, sells, and trades all the popular forms of gold, silver, platinum, palladium and other precious metals. Founded in 2008, Rosland Capital strives to educate the public on the benefits of investing in gold bullion, numismatic gold coins, silver, platinum, palladium, and other precious metals. For more information please visit www.roslandcapital.com.

About Jeffrey Nichols

Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.

SOURCE Rosland Capital LLC