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Rosland Capital Reports On Gold and the Macro Economy

June 4, 2014

NEW YORK (June 4, 2014) – Jeffrey Nichols, Senior Economic Advisor to Rosland Capital, had the following comments: 

I’m just back from a two-week vacation from the gold market.  In the interim much has changed – especially the metal’s price, which has fallen some $65 to $75 an ounce.  That’s more than five percent – but no reason to despair!    

While the price has weakened, the metal’s fundamentals, fundamentals we have discussed in past reports, have continued to improve, so much so that some bounce-back now seems likely – with bigger gains due later this year. 

Golden Drivers

Our optimism about gold’s long-term prospects is, in part, a reflection of our pessimism on long-term U.S. and global economic prospects.  But even if we are wrong on the economy, and we hope we are, gold will still move much higher in the years ahead on the strength of long-term demand from the twin Asian tigers – China and India. 

These gold-market drivers are likely to support a significant rebound in the metal’s price later this year.  One timely factor especially worth highlighting is Indian gold demand, as it is pregnant with possibility.  With a new government in New Delhi, the country’s restrictive gold import policies will almost certainly be relaxed in the weeks or months ahead, leading to a surge in demand ahead of this autumn’s festival season, traditionally a time of great gold interest across the sub-continent.  Remember, until last year, India was the world’s largest gold-consuming market when a surge in Chinese demand and India’s own restrictive gold-import policies reduced it to second place in the gold world. 

Russia in the Wings

Another possible short-term boost for gold could come from a further aggressive gambit by Russia on the East European chessboard.  Right now, the Ukraine situation is neutral toward gold.  Whatever price gains were registered at the time of Russia’s annexation of Crimea have largely dissipated and no longer result in any gold-price premium.   

For now, Russia seems less threatening to Ukraine’s territorial integrity, even in the areas culturally and linguistically aligned with the Russian bear.  But this could change quickly – and, if it does, expect gold prices to move higher.  In other words, any further relaxation in tensions in the region is unlikely to weigh on gold’s price – but a worsening of tensions would, at least temporarily, raise safe-haven demand and benefit the price. 

The Macro Economy – Bullish for Gold

We believe the macro-economy in the more advanced industrial nations will continue to be constrained by insufficient demand for goods and services – especially in the household and public sectors.  Moreover, the latter – which could do much to bolster growth – continues to pursue inappropriate and misguided fiscal policies in the mistaken belief among some that cutting government spending will encourage private spending. 

Instead, without any help from fiscal therapy (which would be more appropriate and more successful in ameliorating the pain of persistently high unemployment, especially when accounting for discouraged workers, who are dropping out of the labor force) the burden of stimulating the economy has fallen on the Federal Reserve and other major central banks. 

Monetary policymakers – in expectation of a speedier recovery and a return to pre-2008 rates of economic growth – are already adopting less accommodative policies and have signaled a rise in short-term interest rates could begin by mid-2015.  This situation, these expectations, have indeed weighed heavily on the gold market in past weeks. 

We believe financial market expectations built on these assumptions are overly optimistic . . . and this will be reflected in a variety of disappointing economic indicators over the next few months.  As financial markets and central bankers at the Fed adjust to the reality we expect – that is the reality of persistently disappointing economic growth, gold investors will be major beneficiaries.

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 buying gold bullion, numismatic gold coins, silver, platinum, palladium, and other precious metals. Rosland also helps people who wish to protect their wealth by including a gold or precious metal-backed IRA in their asset portfolio. Click here to request more information.

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.