$2500 Gold - Is Nichols Nuts or a Prescient Observer?

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"Most people would say I'm nuts, but I think we are going to see gold over $2,500/oz before we're done."

Money continues to pour into gold bullion and ETFs, and gold stocks have made huge recoveries from their nadir in October. The consensus appears to be that there is plenty of upside to come as we continue to be hit by adverse economic news.

Gold seems to be the means of protecting one's wealth with the lowest downside likelihood. Everything else appears very vulnerable. But there are potential pitfalls ahead for the gold and gold stock investor. While the gold price may well soar to unprecedented highs over the next year, it may not be a smooth run. Indeed as investment builds in the ETFs, in particular, the potential for profit taking is high; and sometimes a bout of profit taking can bring prices down sharply indeed.

High prices are also bringing in big increases in scrap sales of investment grade jewelry (high caratage and low mark-up material) in the Middle East and India. So the path ahead for the gold price is uncertain as profit taking becomes an increasing factor should the price continue its upwards path.

Speaking on Mineweb/Moneyweb radio yesterday, U.S. gold guru Jeff Nichols of American Precious Metals Advisors particularly emphasized this point but is confident overall that the price will continue to increase - and to rise sharply in the year or so. "Most people would say I'm nuts, but I think we are going to see gold over $2,500/oz before we're done," said Nichols.

Nichols also warned that any big price rise is likely to be interspersed with sharp corrections. Jewelry demand has fallen back sharply, which could put a big dent in demand; but currently, investment gold is balancing the jewelry fall-off. World gold production is still falling, too; and if some other Central Banks follow Russia's example, and aim to increase the gold proportion of their reserves, there could be additional offtake here to help keep the market in balance...

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