Gold and silver to dip in the short term but ride is not over yet - Nichols

Source: Geoff Candy, May 4, 2011 - mineweb.com

The current state of US fiscal and monetary policy, continued growth from Asia and the entrance of new players into the market mean that the longer-term silver and gold upcycle still has some years to run.

GRONINGEN

The old adage: sell in May and go away, seems once again to be coming to the fore as prices of both gold and silver have largely traded lower since the start of the month.

And according to Jeff Nichols, MD at American Precious Metals Advisors and economic advisor to Rosland Capital, prices are likely to continue to weaken over the very short term as both metals had got a little ahead of themselves.

But, he told Mineweb.com's Gold Weekly podcast, "looking out beyond the next month or two - gold and silver will be in a renewed cyclical upswing and I expect prices by year end to be significantly higher than they are today for both metals."

He adds that while there are still a number of years left of generally rising prices for gold and silver, "Silver especially has been driven in large measure in recent weeks by short term speculative buying and momentum buying. Now that the momentum has switched into reverse many of those who went long silver are now going short silver and we could see quite a correction back down perhaps to $35 or $38 an ounce."

The outlook for gold, even in the short term, remains pretty good according to Nichols, who believes that while we could easily see a $10 or $20 drop in prices over the next week or two, "the fundamentals are so overwhelmingly positive for gold and there's a long list of them that are going to support gold over the next year or two or three."

At the top of the list of drivers underpinning the gold price, according to Nichols is the current state of US monetary and fiscal policy, "The inability of the US to get its federal budget under control and to at least have some promises of reducing the significant debt overhanging the US economy is really a troubling matter and is putting the Federal Reserve in a position of literally having to finance the US federal deficit through the printing of money. It's very inflationary. It's depreciating the value of the dollar against foreign currencies and it's one of the main driving factors supporting the rising gold trend."

Another important factor is the continued growth in demand from China and India as well as the entrance of new participants into the gold market. A good example of which is the recent announcement by the Texas University Endowment Fund that it has bought some 20 tonnes of gold and were taking delivery of the metal into an HSBC warehouse.

"We have seen some hedge funds do likewise and even some insurance companies in the last year or two have begun to invest in gold. A few years ago that would have been unheard of,"" he says.