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Jeffrey Nichols - Senior Economic Advisor for Rosland Capital - Talks Gold Prices and Economic Turmoil

Published 08/08/2011

NEW YORK (August 08, 2011) - Jeffrey Nichols, Senior Economic Advisor to Rosland Capital (www.roslandcapital.com), had the following commentary based on recent market activity:

Gold reached a new all-time high of $1,720.30 an ounce this today (Monday) and, at the time of writing, was trading around $1,715, a gain of $51 or three percent for the day.

Rosland clients may recall late last year we predicted gold would hit $1,700 an ounce by late 2011.

Although we would not be surprised to see a sizable short-term correction in the days or weeks ahead, we are raising our year-end target gold price to $1,850, give or take a few dollars.

Last Friday's announcement that Standard & Poor's had downgraded its rating of long-term U.S. debt certainly contributed much to the swift revaluation of gold in the marketplace -- but it is not the only factor supporting gold's latest move to new historic highs. After all, S&P's reappraisal and downgrading of America's creditworthiness didn't tell gold investors anything that they didn't already know. But it has led to an increase in financial market uncertainty, sending anxious investors into safe-haven assets. And, for many, gold is the preeminant safe have.

While the S&P announcement has garnered much attention from the media, at least on this side of the Atlantic, the ever-worsening European debt crisis is equally, if not more important, to gold's long-term outlook. Europe's most debt-ridden economies have suffered a continuing degradation of their own sovereign debt by the rating agencies. As a consequence, their borrowing costs are rising, their fiscal deficits are worsening -- and the likelihood that one or some of these countries will withdraw from the Eurozone is increasing,

Despite today's move by the European Central Bank (ECB) to purchase Spanish and Italian debt in order to calm the European credit markets, it is only a matter of time before the folly of a single-currency European monetary union becomes unbarable and one or more of the periphery economies -- Portugal, Ireland, Italy, Greece or Spain -- jump ship for a depreciated currency of their own.

In the meantime, the ECB's purchase of member country debt with newly created euros is the European equivalent of Quantitative Easing -- and will lead to the currency's depreciation and loss of purchasing power.

Reflecting these fears -- rising inflation and a break up of the eurozone -- retail investment demand for small bars and bullion coins has been fairly strong in recent weeks. Gold investors are increasingly reading the writing on the wall. They are buying gold -- and even U.S. dollars -- as safe havens from the coming break up Europe's common currency.

For the same reason, the euro is losing its gleam as an international reserve currency, even more so than the greenback, and a growing number of central bank's are increasingly turning to gold to diversify their official reserve assets. The euro's questionable future, along with S&P's downgrading of U.S. government debt, and a similar "unofficial" downgrading of U.S. dollar assets in world financial markets, is prompting central bank reserve managers to increasingly turn to gold for diversification, as an inflation hedge, and as risk insurance.

Demand for gold jewelry and investment in the two largest gold-consuming countries -- India and China -- has remained firm in recent weeks and months despite the metal's rising price trend. Historically, Indian demand softens in response to sharply higher prices while Chinese investors often step up buying in response to a rising price trend. An abatement in gold demand in these important Asian markets could trigger a temporary correction in gold's long-term uptrend.

So too could a wave of profit taking by institutional speculators who now have sizable net long positions on gold futures and derivative markets -- and may wish to book gains while the going is good. Simply a loss of upward momentum, not uncommon after a steep price advance, can trigger selling by technically inspired momentum traders.

Gold also faces short-term risk from the steep decline in world equity markets. Investors meeting margin calls, or simply seeking greater liquidity, sometimes sell gold to offset losses elsewhere. But such gold liquidation, however intense, tends to be short lived.

We would advise investors to step up their scale-down buying -- and use any sizable correction as an opportunity to increase physical gold holdings. Given the increased uncertainty, volatility, and risk in world equity, fixed income, and currency markets is also seems prudent to increase gold holdings even at higher prices.

To arrange an interview with Jeffrey Nichols, please contact Carrie Simons of Triple 7 Public Relations, LLC at (615) 254-9389 or carrie@triple7pr.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.