Gold Price Drivers In 2010 -- The Big Movers
Jeffrey NicholsGold rallied sharply on the first trading day of 2010 -- in part, mirroring a weaker U.S. dollar but also reflecting reestablishment of long positions by some funds and speculators who, despite their bullish view of the market, sold metal in December to realize profits earned from last year's price surge.
January 7, 2010
I expect the yellow metal will hit $1,500 an ounce or higher during the year, a gain of more than 35 percent from its Dec. 31 close. Looking further ahead, gold's bull market will likely continue for another few years, carrying the metal to a cyclical peak of at least $2,000 or more. At the same time, silver could very well outperform gold, rising from $17 an ounce at the end of last year to an annual high of at least $25 sometime during 2010, a gain of more than 45 percent from last year's close.
While silver's advance will mostly reflect strong cyclical growth in both industrial and investment demand, gold will also benefit from rising secular expansion of investor participation, central bank reserve diversification (which is only just beginning), and an irreversible erosion of the U.S. dollar as the single dominant reserve asset and denominator of much world trade. As a result of these secular developments, over the next decade and beyond, the long-run average price of gold (stripping away the major cyclical bull and bear market swings) will be considerably higher than past experience would suggest -- and considerably higher than many analysts and investors would dare imagine.
Key fundamentals, some of which have been ignored by gold's detractors, remain intact:
- U.S. monetary and fiscal policies remain extremely expansionary and, ultimately, inflationary;
- There's strong continuing central bank demand for gold as more countries try to limit their exposure to a depreciating dollar and diversify their official reserve holdings;
- Investment demand is growing, with more individuals and institutions viewing gold as a legitimate asset class, portfolio diversifier, and insurance policy, and;
- World gold mine production will continue to decline for at least another five years.
Expanding wealth in other geographic markets with a cultural interest in gold, including China and India, will be buying more gold jewelry and physical gold investments than ever before.
Gold's longer term forecast is detailed in my last report:
"$1500 In 2010 & $2000-$3000 Longer Term."
Jeffrey Nichols is Senior Economic Advisor to Rosland Capital and Managing Director of American Precious Metals Advisors- see www.roslandcapital.com and www.NicholsOnGold.com
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