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Jeffrey Nichols - Senior Economic Advisor For Rosland Capital - Explains Why Gold And Silver Are Beneficiaries Of The Current European Plight

Published 07/07/2011

NEW YORK (July 7, 2011) - Jeffrey Nichols, Senior Economic Advisor to Rosland Capital (www.roslandcapital.com), had the following commentary based on recent market activity:

In May and June, as precious metals prices tumbled and remained depressed, we advised clients to use the drop in prices as an opportunity for scale-down buying. Now that prices are again showing signs of renewed strength, don't wait for gold and silver prices to soar.

From a long-term perspective, today's price levels will prove to be bargains. For some time now we have suggested gold might rise to $1,700 an ounce by late 2011 - with $2,000 and $3,000 just a few years further down the road and still much higher prices possible by the mid-to-later years of the decade.

Gold and silver have had an incredible decade of price appreciation - but their bull market could easily go another five or ten years (and possibly even longer) with the price of gold doubling or tripling and silver, well who can really say where the top will be?

In the unlikely event that we are "lucky" enough to have another big retreat in precious metals prices, consider it an opportunity to do more scale-down buying - and acquire additional metal at bargain-basement prices.

For sure, price-sensitive Asian demand - principally from China and India - for physical metal will continue to underpin these markets and limit downside risks. So too will bargain hunting by a number of central banks eager to raise their official gold holdings without disrupting the world gold market or greatly affecting price volatility.

Short-Term Price Driver

As important as Asian and central bank gold buying may be to the long-term prospects for these metals, it is more likely the short-term trajectory of precious metals prices will be determined by the unfolding economic sagas in Europe and the United States.

Both economies are struggling with politically unmanageable government deficits and the burden of excessive sovereign debt. And, on both sides of the Atlantic, economic growth is faltering, unemployment remains much too high, and central banks seem to have little choice but to continue their inflationary monetary policies.

In recent weeks, depending on the news of the day, currency-market sentiment has shifted one way or the other, and short-term capital (hot money, if you will) flowed from the euro to the dollar and back again, buffeting gold prices denominated in these currencies.

Paradoxically, even though gold enjoyed stronger demand over the past few months (in part from Europeans seeking shelter from euro uncertainties but also from all corners of the globe for all sorts of reasons) the dollar-denominated gold price faltered as Europeans piled into the dollar - and this phenomenon explains much of the late springtime weakness in gold prices.

But ultimately, more and more investors are seeing both of these currencies as "damaged goods" - and regardless of the ups and downs in the euro/dollar exchange rate - gold will shine against virtually every currency, certainly against these two one-time heavyweights now past their prime.

A European Tragedy

Greece remains at the top of the news, teetering on the brink of insolvency, as European finance ministers try to cobble together a rescue package that will satisfy the European Central Bank, the IMF, and the various credit rating agencies.

Indeed, European Central Bank president Jean-Claude Trichet recently raised the alarm level on Europe's debt crisis to "red," warning that the crisis is nowhere close to being resolved and warned of the "potential contagion effects across the [European] Union and beyond."

Greece may now be the focus of attention, as it is the closest on the calendar to outright default, but it is only one over several overly indebted European nations requiring periodic bailouts just to stay afloat. These nations - the so-called PIIGS (Portugal, Ireland, Italy, Greece, and Spain) - are all vulnerable to the Greek disease.

Unfortunately, the financial collapse of some of these countries may be inevitable - especially if they are forced to tighten their belts still further. The restrictive "anti-growth" fiscal policies required by the creditor countries and the IMF will inevitably sink these economies deeper into recession and diminish their ability to service their growing sovereign debt.

Moreover, as credit ratings decline for all of the peripheral countries, their rising interest costs to refinance maturing debt make it all that much more difficult to keep their heads above water.

Enough is Enough

Eventually, citizens and voters of these endangered nations will say "enough is enough," forcing their governments to default on sovereign debt, secede from the Eurozone common-currency system, abandoning the euro in favor of their own national currencies, devalued to be sure, but currencies that will allow them to compete in the international economy and eventually regain economic health.

The bigger risk is that a number of Europe's leading banks will incur huge balance sheet losses on their portfolios of Greek, Irish, Italian, Spanish and Portuguese sovereign debt - losses that threaten them with insolvency, requiring huge bailouts and capital injections from the European Central Bank and, even then, threaten the world economy with an another severe financial catastrophe.

But, sooner or later, whatever happens, it is difficult to imagine a scenario in which gold and silver do not emerge the long-term winners.

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.