Jeffrey Nichols: Gold Price to Reach Unimaginable Highs

It’s been an interesting month for the gold price, which rocketed 5 percent on February 11 to hit $1,260.60 per ounce. That was its highest price in a year, and its biggest daily gain in seven years.
Since then gold has fallen off a bit — as of 5:00 p.m. EST on February 24 it was changing hands at $1,228.30. However, it’s still up 15.79 percent year-to-date, and at least some market watchers believe that it’s set to make more gains in 2016.
Jeffrey Nichols, who’s senior economic advisor at Rosland Capital and a top gold expert, is one person who believes that. He recently sat down with the Investing News Network (INN) to explain why he’s so bullish on the yellow metal, and to lay out exactly how high he thinks it could go — encouragingly, he believes gold will ultimately “record highs far above what most people today would dream reasonable or possible.” Read on for more of Nichols’ commentary.
INN: The gold price spiked significantly in the second week of February, and at the time market watchers pointed to a lot of different factors as potential drivers. What’s your take?
JN: Gold staged a powerful recovery [that week], making up some of the ground it’s lost in recent years. I think a few things are underpinning the market. One is a sense that the US economic recovery might be disappointing. [When gold spiked] we saw a number of economic indicators and statistics that were less than anticipated by the markets, and I think that contributed to some selling.
Let me also say that geopolitical developments have probably also been supportive of gold in recent weeks, and have given a little support in addition to other factors.

INN: What geopolitical developments are you referring to?
JN: I’m thinking about the faceoff between Russia and the US over the civil war in Syria. I think that’s really been a key factor that’s emerged in recent weeks.
INN: What about China? Did it play a role in gold’s uptick?
JN: China has been an important support for gold over the last several years. The private sector [has been] buying increasing quantities of coins, small bars and investment-grade jewelry, and central banks [have been] buying huge amounts of gold on a consistent month-by-month basis. Importantly, gold that goes into China — whether it’s private sector buying or investment or jewelry, or whether it’s central bank buying for reserves — is in very strong hands and is unlikely to come back to the world market not only anytime soon, but anytime possibly in decades to come.
What we’ve seen is a shift in gold ownership from the west, the old industrial countries, to the east — China, India and other countries in Southeast Asia. And that gold, as I said, is in very strong hands. It’s not going to come back, and when buyers re-emerge in the US and Europe — the hedge fund buyers and the institutional speculators and the bullion bankers — when they return to the market [gold will only be available] at much, much higher prices. That’s going to drive gold to record highs far above what most people today would dream reasonable or possible.
INN: If all of these factors are working in gold’s favor, why has it now dropped off from where it was in the second week of Februrary?
JN: What happened is that gold hit some resistance at $1,240. I think there was a sense that gold had to take a rest, and the stock market picked up a little bit. [That was a] renewal of the trend of equities and gold going in different directions.

INN: Even so, overall you seem optimistic about gold. Should investors expect its rebound to eventually continue in 2016?
JN: I think that there’s a chance that we’ll see new record highs before year end. I would say maybe a 50/50 chance that gold will go higher than it was four years ago in March 2011.
But whether we get that far this year or not, it’s only a question of time before gold does reach those highs — maybe if not this year, perhaps in 2017 or 2018. I think that we’re really on the verge of a long-term bull market, maybe call it a “super bull market,” with prices going well beyond what most people would anticipate. I think that looking out three, four, five, six, seven years, with that type of time horizon, we’ll probably see prices at a multiple of the current levels, let alone just breaking current levels. So yes, I’m very bullish.
INN: What factors do you see driving gold to those high levels?
JN: Wall Street is overvalued, and one of the reasons that gold has performed poorly in recent years has been the strength of equities — when you look at the Dow Jones Industrial Average (INDEXDJX:.DJI), or the S&P 500 (INDEXSP:.INX) or other indicators, the stock market is at prices that are considered by many to be excessive. And if you look at price-to-earnings ratios, many or most equities are significantly overpriced.
I think we’re going to see Wall Street move into a bear market, and [when that happens] investors are going to become disillusioned with equities and the competition that equities have offered gold is going to diminish. We’ll [then] see a switch of funds from equities into gold and hard assets generally.
INN: When you say Wall Street will move into a bear market do you mean we’ll have another recession?
JN: I think we may be close to the onset of another recession, or if not a recession, a period of subpar economic growth that will be disappointing to investors and disappointing to the US Federal Reserve. [I see it] encouraging the Fed to pursue a continued aggressive monetary policy to keep the economy moving forward or to, in the worst case, minimize the pain from the recessionary environment.
INN: Do you see the Fed continuing to raise interest rates in 2016?
JN: I think that there’s a good chance that rates will not be raised because the economy is going to be weaker than is comfortable.

INN: What about the upcoming US election? Will that have an impact on gold?
JN: I think it’s hard to say. The outlook for the election — who it’s going to be and what type of policies they’re going to pursue — is clearly uncertain. We have a very unusual political climate at the moment, and how you could translate that into a gold price forecast beats me.
I’ll add one point to that. If we have Bernie Sanders as the next president, there’s going to be a lot of financial pressure to keep interest rates low to finance a large deficit — a large and growing deficit, I should say, with more monetary creation by the Fed. That could be supportive of gold prices in the years following the election. But of course Bernie Sanders hasn’t been elected yet, and it remains to be seen whether he will or won’t be.
I also think there’s too much uncertainty about what Donald Trump would pursue in terms of economic policies and what their implications might be. I’m not quite sure he even knows.
INN: What’s the best way for investors to take advantage of gold’s possible future gains?
JN: I think it’s important for every investor to have a core position in physical gold, preferably popular bullion coins like the American Eagle or the Philharmonic, or the Canadian Maple Leaf. Even the Krugerrand from South Africa. Those are all highly recognizable, very liquid, fairly safe vehicles to hold as a core position in gold.
I would also suggest that it’s appropriate for most investors, depending on what their other investments are, and what their willingness to accept risk may be, to hold 5 to 10 percent of their investable portfolio in physical gold. And then if one is bullish or more worried about the economic and political environment, one could take a bigger position, possibly in some other form.
INN: Any final thoughts?
JN: Let me just reiterate that I think we’re heading into a very bullish long-term market for gold that’s going to last a number of years. It’s going to bring gold to new historic highs, and it’s going to be in some function a measure of how Wall Street performs and of the expectation that stock and bond markets, not only on Wall Street but also around the world, are going underperform and not provide strong competition for investor dollars.
For more insight from Nichols, check out Rosland Capital on LinkedIn and Twitter.


Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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