Reality Check: Gold Expert Sees Inflation, Stagflation on Horizon

Jan 20, 2010, 16:49 ET from Rosland Capital LLC

NEW YORK, Jan. 20 /PRNewswire/ -- Jeffrey Nichols, Senior Economic Advisor to Rosland Capital, had the following commentary based on today's market activity and the week ahead. Key points:

  • U.S. Economy is Looking at Double Dip with Stagflation Topping
  • Look for BRIC economies to Pave the Way
  • Private Investment and Official Demand to Fuel the Bull's Stampede
  • Continued Volatility Will Characterize Gold's Rise

Second Dip of the Recession on the Way

I believe we are heading into a period of further economic weakness here in the United States and in the other "old" industrialized nations – a "double dip" – that will become readily apparent by mid-year if not sooner.  At the same time, by summer, we will begin to see some undeniable signs that U.S. inflation is again stirring.

Looking further ahead, the industrial world faces an extended multi-year period of stagflation – low economic growth, continuing high unemployment, a drop in average living standards, and consumer price inflation well above the acceptable rates of recent years.

Meanwhile, the newly industrialized or emerging economies in Asia and elsewhere – led by China, India, Brazil, and, yes, Russia – will fare well by comparison with relatively strong growth in output and employment, restrained consumer price inflation, and appreciating currencies versus the U.S. dollar, euro, and the British pound.

Here in the U.S., our economic pain is largely a consequence of consuming and spending more than we could afford at all levels of government and society.  In a real sense, we are bankrupt and the "repo man" is now knocking on our door.

At the same time, judging from the Fed's own balance sheet, quantitative easing continues.  For now, I can't see how the Fed can do otherwise – until there is a significant stabilization in the housing market, a sustainable and continuing improvement in the labor market (with declining unemployment), and rising consumer confidence . . . or until inflation rates are so high that a return to price stability takes precedence.  In the meantime, the Fed must continue buying U.S. Treasury debt and housing agency debt with newly printed money.

Without the political will power by policy-makers to "bite the bullet" and a willingness by Americans to accept a lower standard of living for a period of time, we can expect a continuing balancing act by government between the demands of our foreign creditors and the bond market and the voters, who may turn on incumbents unable to deliver on their false promises of a quick return to the good old days.  

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

About Rosland Capital

Rosland Capital LLC is a leading precious metal asset firm based in Santa Monica, California and 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

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.

Gold will continue its ride up

It means at least a few more years of smartly rising gold prices, reflecting a continuation of the economic status quo – and growing "safe haven" demand from investors around the world.

It means continued low interest rates - even more so in "real" terms after adjusting for rising inflation.

It means continued trillion dollar Federal deficits - deficits that are monetized because there is insufficient demand from private investors and central banks to accumulate more and more U.S. dollars.

It means rising U.S. and European inflation - as the unprecedented rate of monetary creation cheapens the dollar, the euro, and the British pound.

It means rising prices for oil and other commodities (including platinum, palladium, silver, and foodstuffs) in world markets – as Asian nations, especially China and India, continue their rapid industrialization and growing Western-style consumerism.  And, higher commodity prices will simply aggravate the monetary-inspired inflation here in the United States.

It means strong and rising private-sector investor interest in gold from newly industrialized nations - as rising personal income and wealth finds its way into gold, the most traditional form of savings in many of the Asian countries.

It means continued official demand for gold – from both central banks and sovereign wealth funds – in order to reduce, if only a little, today's excessive exposure to U.S. dollar risk.

Expect high volatility

However, gold prices won't move higher without interruption.  We expect continued high volatility – more like an amusement park roller coaster than the maglev train I took from the airport to Shanghai's city center, a 30-kilometer trip in just about 7 minutes.

The two main sources of gold price volatility will continue to be:

  • The growing importance of investment demand; the ease of entry and exit afforded by gold exchange traded funds and some of the other new gold-investment vehicles that have gained importance in various local markets; and the participation of more hedge funds and other institutional investors and speculators, some of whom lack long-term allegiance to the yellow metal or may be more trading-oriented than the typical retail investor.
  • Volatility in the dollar's exchange rate, reflecting the currency market's quick judgments about U.S. monetary policy and the timing of the Fed's first step up in interest rates; similar judgments about European and British monetary and fiscal policies; and perceptions of sovereign risk (related to Greek, Spanish, Portuguese, or Eastern European government debt, etc.) that may send currency traders temporarily to the dollar as a safe haven.

At some point, the U.S. dollar exchange rate vis-a-vis the euro, the pound, and the yen will become less important to the gold price as all these currencies come to be perceived as sinking ships.  Paradoxically, recent periods of dollar strength have been attributed to its safe-haven status in the face of uncertain world financial markets.  This is a role that has traditionally been played by gold – and gold will again retake center stage as investors come to see the dollar, along with the other major currencies, as depreciating assets losing real purchasing power.


Liz Cheek

(212) 885-0682

SOURCE Rosland Capital LLC