Jeffrey Nichols: Gold to Reach $1,850 – Perhaps Even $1,923 – by Early 2012!

A Matter of Perspective

Even though gold remains well below its all-time high near $1,924 an ounce (reached briefly on September 6, 2011) it is, nevertheless,… [approximately 20%] above the trading range that prevailed at the beginning of the calendar year – making gold just about this year’s best performing asset class, even outpacing the major equity indexes, over the past 11 months. The explanation for gold’s failure to move higher in recent weeks following its spectacular rise earlier in the year has much to do with which currency we choose as the numeraire or yardstick with which to measure gold’s price.

In US dollar terms, gold may be off its all-time high, but when measured in many other currencies – the euro, the British pound, and the Swiss franc, for example – or in the currencies of the two biggest gold-consuming countries, the Chinese yuan and the Indian rupee – gold is today trading at or near its historic all-time highs . . . and perceptions of the gold price among residents of these countries is somewhat more positive than those who think of gold only in US dollars.

Behind the Scenes

What’s happening behind the scenes, so to speak, is that safe-haven and short-term speculative demand for US dollar-denominated US Treasury securities has been disproportionately large compared to safe-haven and short-term speculative demand for gold. It’s not that demand for gold in world markets has actually diminished in the weeks since the early September all-time high. In fact, demand – physical demand for real gold in all of the major markets around the world – has remained firm. It’s just that demand for the US dollar has been relatively stronger. The result has been a rise in the dollar’s exchange rate with other currencies and, if you will, the dollar’s exchange rate with gold.

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Much of the short-term gold-price action this year has been dominated by institutional speculators – the trading desks of the major banks, financial firms, and funds – seeking short-term gains or hedging against possible losses if they’re holding vulnerable assets. Importantly, most of these players have little or no lasting interest in gold, one way or the other – and, for now, their super-strong demand for US Treasury securities and the resulting up-valuation of the dollar vis-à-vis many other currencies is resulting in gold’s “apparent” lackluster performance.

Just as importantly, the greenback’s relative strength is not an indicator of the dollar’s value or purchasing power. American consumers – when they go to the grocery store, heat their homes, fill up at the gas station, go out to dinner and the movies, or attend a professional baseball or football game, will tell you the value of their dollar is shrinking and this is one reason a growing number of American investors are keen on gold.

Driven By Fundamentals, Not By Traders

While institutional traders, speculators, and hedgers may be of short-term importance, producing a great deal of gold-price volatility, they have absolutely no affect upon the long-term trend and average prevailing price over a span of years. What governs the price of gold over the long term are the market’s real-world supply and demand fundamentals – and these continue to be bullish, in fact, increasingly so.

Conclusion

My strong belief is that the price of gold – in US dollars and virtually all other currencies – is heading higher, much higher, over the next several years. I have no doubt that the recent downward pressure on the gold price arising from the US dollar’s “apparent” strength will prove to be temporary. I sense gold will soon resume its long march upward – a march that could, before long, carry the price to the $1,850 region and perhaps even to its historic peak of $1,923 by the end of this year or in early 2012.

[Also read an article by Goldrunner entitled Relax! Gold, Silver and HUI Index to Bounce Back to Major Highs in Early 2012 who sees gold gold to somewhere between $2,250 and $3,000 before the end of the first quarter of 2012 and another entitled Situation is Ultra-bullish for Gold & Silver Bullion and Stocks! What are You Waiting For? that sees gold going to around $2,000 within the same time period.]

Most importantly, however, is that gold prices will continue trending higher, albeit with plenty of volatility and corrections along the way, through at least the middle years of the decade.

*http://www.resourceinvestor.com/News/2011/11/Pages/Historic-Gold-Peak-Ahead-by-Early-2012.aspx?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+resourceinvestornews+%28Resource+Investor%29

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Titles and Links to Articles Referenced Above:

1. Relax! Gold, Silver and HUI Index to Bounce Back to Major Highs in Early 2012

With the present major correction in gold, silver and the mining sector it is important to look at the big picture and see what the charts are saying from a technical fractal relationship with what happened back in 1979 when the last truely major bull run occurred. To date the situation is, frankly, no different than it was back then unfolding just as it should. As a result we can expect MAJOR upward price action in physical gold and silver and in their mining (producers, developers, explorers and royalty streamers alike) in the next few months on their way to their respective parabolic peaks in the years ahead. Read on. Words: 1265

2. Situation is Ultra-bullish for Gold & Silver Bullion and Stocks! What are You Waiting For?

The technical situation is ultra-bullish for both gold and gold stocks. Sentiment indicators…continue to show [that] the dollar is poised for a serious decline and the MACD on the gold chart is giving one of the most powerful buy signals in the history of the bull market. The GDX should reach $75 a share by year-end and gold should push to new highs in the $2000 area by January of 2012 [while silver] could possibly be the best investment opportunity available to investors for many years to come! [Let me explain and back up my comments with an array of charts.] Words: 781

Other Related Articles:

1. Where are We Now in the Bull Market in Gold – and How Many Years/Months are Left?

Gold is in a bull market and, [believe it or not,] so are the gold stocks despite their struggle as a group to outperform gold… but [neither] is anywhere close to a bubble, nor the speculative zeal we saw in 2006-2007. Thus, it begs the question” “What lies ahead and when can we expect the initial stages of a bubble?” To figure this out we first need to get an idea of how long the bull market will last and then where we are now based on various indice analyses. [Below I do just that.] Words: 785

2. Back Up the Truck: It’s Time to Buy Gold With Both Hands! Here’s Why

Since the fundamentals still point to gold’s long-term viability… why [are] investors responding by selling gold…? I was always told not to look a gift horse in the mouth… [so] take advantage of the dip. Words: 880