Here’s the text of my November 19th interview
with Geoff Candy of South Africa’s MoneyWeb
Radio. For a podcast of the interview click here. The bottom line quote: “It
wouldn’t surprise me if in our lifetimes we never see gold back below
GEOFF CANDY: Jeff Nichols joins us now. He is the MD
of he American Precious
Metals Advisors. Jeff, I was reading one of your blogs, NicholsOnGold.com,
about where gold might go, and whether we’re at an interesting turning
point in gold.
But there was also a report out by the World Gold Council, saying that third-quarter demand for gold is the
highest on record, at around $32bn, which is 45% higher than the last record
in terms of quarterly demand. The price not reflecting that?
JEFF NICHOLS: Yes, I think we’ve seen a
dichotomy or a divergence in the gold market between what’s going on in
the physical world and what’s going on in the paper markets, and
between dealers and institutional players.
On the one hand, what I call the household sector,
individuals and families, are buying gold like
it’s going out of style. That’s now been confirmed by the World
Gold Council, but it’s something that we’ve known all along
because reports on gold coin sales, for example, have been very positive.
Retailers have been lacking inventory, and mints have been working flat out
to deliver coins, and they are still trading at premiums. Similarly, gold-bar
demand, particularly those bars that are popular in the Middle East and in
India, refiners report that they are fabricating at
100% capacity, and still delivery times are stretching and premiums are
And so we see individuals and households worried
about the future, worried about prospective inflation, uncertain about where
the world economy is going in the next few years, buying gold as a hedge and
On the other hand, operating in the other direction
have been large hedge funds that have been invested in various baskets and
indexes of commodities, and those indexes have included some gold - not
principally gold, not principally precious metals. But when they’ve
liquidated those baskets of commodities, it’s taken gold down with it.
GEOFF CANDY: Jeff, what about the ETFs? How do those
fit in? They seem to almost straddle the retail, the local investor…
JEFF NICHOLS: I think you’re right. It’s
a little of both. But ETFs have grown rapidly over the last year. In the last
month they’ve sort of been flat, but it’s been a positive and it
has contributed, certainly to a strong physical offtake
because ETFs, after all, take gold out of the market and put it in bullion
vaults where it’s not traded, but sits and reduces availability of gold
for other purposes and other investors.
Still, what’s overwhelmed the market has been
trading by bullion dealers on the short side, and disinvestment in commodity
baskets and commodity indexes by hedge funds. I would say that may be near
and end, and when it does come to an end I think we are going to see gold
snap back up.
GEOFF CANDY: Why is that? Where is the level where
the supply-demand fundamentals or the traditional influences that affect gold
come back into play?
JEFF NICHOLS: Well, I think when hedge funds have
disinvested what there is to disinvest, when they have sold what there is to
sell, when other large-scale holders who have been on the short side of the
market have sold what they have, gold will snap back and begin to register
once again its very positive fundamentals.
I think I should add one point: there has been some
private net disinvestment, also by wealthy individuals, and also wealthy
households, largely to cover equity-market losses. Just like some of the
funds and institutions have been doing, some wealthy families have been
selling as well. And I think that process is running out, in part because
their holdings of gold are running out.
GEOFF CANDY: Jeff, where does that
leave us in terms of the gold price over the next 12 months?
JEFF NICHOLS: I’m still very bullish about the
next 12 months, and I think in that time frame we’ll see gold back over
GEOFF CANDY: And is it likely to fall much further
before it starts going back up again?
JEFF NICHOLS: I don’t think so. The market is
volatile and vulnerable - if only because the psychology is one of
nervousness - and in that type of environment you could have a quick sell-off
that would bring us back to the recent lows. But, day by day, I think that
becomes less likely and, day by day, I think the base is building for a
recovery. It wouldn’t surprise me if in our lifetimes we never see gold
back below $700/oz.
all the other articles published by Jeffrey Nichols
Jeffrey Nichols, Managing Director of American Precious Metals Advisors, has been a leading
gold and precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with
an interest in precious metals markets. Please check his website and register
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