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Friday, January 14, 2011

Seven reasons for gold to hit $1700 or higher this year - Jeffrey Nichols - Mineweb

Gold's steep ascent continued in 2010, finishing the year in New York at $1,420.75. Though just shy of its all-time high of $1,432.50 registered on December 7th, gold nevertheless advanced some 29.5 percent from the prior year's close and scored its tenth consecutive annual increase.

Despite a rocky start - with prices dipping briefly under $1,360 an ounce on January 7th - 2011 promises to be another stellar year as the metal's bullish price drivers continue at full throttle.

I expect the price will very likely rise to the $1,700 level by year-end 2011. This would be a "modest" gain of "only" 19 percent from last year's closing price. And, with the right confluence of events, gold could quite possibly rise to $1,850 or higher by next New Year's Eve.

Over time and across currencies, bull markets in precious metals often last twenty years or more - so we should not be surprised to see the current decade-long advance continue for at least a few more years.

Indeed, I strongly believe gold will surpass $2,000 an ounce in the next few years . . . and I wouldn't be at all surprised to see gold reach $3,000 or higher at the next cyclical peak.

Gold prices are likely to remain volatile, registering big short-term swings both up and down. Although sizable intermittent price declines will lead some to question the bull market's staying power, the long-term trend, as noted above, will remain positive for years to come.


As we begin the New Year, physical demand in key world gold markets - especially China, India, and other Southeast Asian trading centers - has remained remarkably firm despite the record price levels prevailing in recent weeks.

In the past few years, each time gold prices reached for the big round numbers - $900, $1000, $1100, $1200, and $1300 - buying interest diminished and a return flow of price-sensitive old scrap weighed heavily on the market. But now, even with prices once again at or near all-time highs, physical demand remains remarkably strong and only limited quantities of old scrap are coming back to the market.

This suggests not only a continuing price appreciation and revaluation of gold - but also a mental re-evaluation and upward shift in expectations among many gold-market participants about the metal's future price.

If physical buying remains fairly firm - as I believe it will - we can expect that gold will soon advance to new all-time highs.


In brief, here are the seven fundamental reasons why gold's long-term outlook is rosy:

Number One: Inflation-producing U.S. monetary policies, irrational U.S. fiscal policies, little if any progress reversing growth in Federal debt, and a depreciating dollar overseas all promise rising inflation at home. Higher industrial and agricultural prices around the world and across currencies are a harbinger of things to come.

Number Two: No quick or easy solution to the Eurozone sovereign risk crisis, a widening economic schism across the continent, and possibly the demise of Europe's common currency, the euro, as it exists today.

Number Three: China's already huge and growing appetite for gold - both jewelry and investment - will continue in tandem with economic growth, rising personal incomes, worrisome inflation expectations, and pro-gold government policies.

Number Four: Rising long-term gold demand from India and other traditional Asian gold markets reflecting (as in China) growth in personal incomes and wealth, the maturation of local markets, and introduction of new gold investment vehicles and distribution channels.

Number Five: Increasing central-bank interest in gold will continue to underpin the market as countries (such as China and Russia) over weighted in U.S. dollar and euro currency reserves and under weighted in gold play catch-up - and as both the dollar and the euro continue to lose their appeal as official reserve assets.

Number Six: The continuing reevaluation of gold as a legitimate investment class is prompting greater participation from both retail and institutional investors in the United States and Europe, coupled with new products and channels of distribution (especially the growing popularity of gold exchange-traded funds) will continue to make gold more convenient, more attractive, and more accessible to more investors around the world.

Number Seven: Little or no growth of aggregate world gold-mine production for at least the next five years - with gold-mining nations absorbing more of their own production to meet domestic demand for jewelry, investment, and additions to central bank reserves.

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