Jeffrey Nichols, senior economic advisor to Rosland Capital had the following comments today:
Any day now, gold could find itself in a sustainable long-term uptrend – or not.
What remains true is that near-term gold-price prospects remain uncertain with the continuing possibility of sizeable price moves in either – or even both – directions.
What also remains true is the high probability that the yellow metal’s price will be considerably higher at this time next year – with a sustainable long-term upswing already underway.
Over the past couple of years the gold price has been driven lower by negative sentiment among a very small number of market participants, principally the bullion banks, hedge and commodity-focused funds, and other institutional speculators trading amongst themselves mostly futures, options, and other “paper” gold products not only on regulated exchanges but also on over-the-counter or dealer-to-dealer markets.
At the same time, a much larger group of gold-market participants – numbering in the millions – have been acquiring huge quantities of physical gold, and continue to do so even as bearish speculators drive the price of the metal lower. This group includes retail buyers of coins, small bars, and investment-grade jewelry in India, China, and even Western markets. It includes Swiss gnomes and Arabian sheikhs, sovereign wealth funds and super-rich family offices, and a number of central banks that are under-weighted in gold and, at the same time, distrustful of the U.S. dollar.
What’s more, clients should be cognizant of the fickle “short-sightedness” of today’s gold bears: They may be here today, pushing prices lower, but they will be gone tomorrow when it looks like price momentum and their technical trading models have shifted gears from “reverse” to “drive.”
Importantly, the accumulation of physical metal by the gold bulls is very long-term in nature and much of these holdings will never come back to the market. This suggests that as the gold market shifts direction, there exists the possibility of surprisingly strong upward pressure on the price of the metal.
Contributing to the negative sentiment among many gold bears of late has been the appearance of a stronger U.S. dollar vis-à-vis the other key trading currencies and the continuing strength of stock and bond prices on Wall Street. We continue to hold the view that as expectations for the U.S. economy once again begin to deteriorate and expectations of prospective Federal Reserve interest-rate policies begin to shift, sentiment toward gold will improve – and the paper traders will again be running prices higher.