HardAssetsInvestor

Written by Lisa Barr  |

October 01, 2010

Jeffrey Nichols: Why Gold Will Hit $1,500 By Year End—Or Higher

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Rosland Capital's senior economic advisor explains why $1,300 was such an important level, and why gold still has much farther to rise.

Gold broke through a new record earlier this week, topping $1,300/oz for the first time. Psychologically, $1,300 was an important level, one that appears to have pumped more steam into the gold rally and transformed even the most dedicated gold bears into bulls.

And the uptrend shows no signs of reversal anytime soon, says Jeffrey Nichols, senior economic adviser to Rosland Capital and the managing director of American Precious Metals Advisors. A widely recognized expert in precious metals, Nichols has worked with everyone from mints to mining companies to develop financing and investor relations.

HAI Editor Lara Crigger caught up with Nichols earlier this week to get his perspective on gold's record run, including whether gold's nearing bubble territory, why food prices affect gold and why $1,500 gold by year end is just the beginning.

Crigger: Gold just broke $1,300/oz earlier this week, and you've publicly stated you believe it could go as high as $1,500/oz by the end of the year. Why is $1,300 such an important level? And why do you see $1,500 in our near future?

Nichols: $1,300 is an important level mostly for psychological reasons, because it's a round number. People love round numbers, particularly technically oriented traders. So that's one reason. The other is, it worked hard the last couple of months to finally break through. And now that it has, it seems to be establishing a new floor above or around $1,300. So, from a technical point of view, it looks to me like it's gathering steam for another effort at moving higher from these levels.

I'm optimistic about the $1,500/oz forecast by year end, which, incidentally, is the forecast that we've had for a year or longer. In the next couple of months, gold has a variety of factors going for it. First and most simply, seasonal demand.

Crigger: Right. We're getting into the holiday season, all across the world.

Nichols: That's probably what pushed us over $1,300. In the Western world, jewelry manufacturers start gearing up and building inventory for the Christmas season, so that brings Christmas forward for jewelry manufacturers and that's just now beginning to kick in.

But gold demand for jewelry and small investment items in India also has a very strong seasonal aspect to it. Some of it is because of festivals and the marriage season; some of it is because the beginning of September is harvest time for many of the farm communities in India.

This year, harvests will be quite good, because we've had, from the Indian point of view, a very good monsoon. Unfortunately, in Pakistan, the same storm caused all that havoc, but India got none of the problems, only the benefits. So agrarian income will be good this year, and some of that income naturally finds its way into gold.

One of the important things about Southeast Asian demand, in general, and Middle Eastern demand, is that it doesn't require economic crises to do well. What it requires is good growth in personal income. From India to China, to Malaysia, Thailand, Vietnam, the Philippines—all these countries are enjoying very strong economic growth. People in these regions buy gold for a variety of reasons, one of which is as a form of savings. So when incomes are strong, some portion will go into gold.