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Whether or not the Fed initiates further stimulus in the days ahead, we face an extended period of economic stagnation and recession-like business conditions . . . and an extended period of increasingly stimulative mo..

28 Jul 2012

By Jeffrey Nichols
Gold has risen above the psychologically important $1600 mark on hops that US Fed Reserve will announce further economic stimulus following the July 31-Aug 1 Federal Open Market Committe policy setting meeting.

If there are no stimulus measures, which is quite unlikely, there are still factors that are supportive of the yellow metal.

Whether or not the Fed initiates further stimulus in the days ahead, we face an extended period of economic stagnation and recession-like business conditions . . . and an extended period of increasingly stimulative monetary policies that will drive gold prices significantly higher.

Higher gold prices are not just a monetary phenomenon or wholly dependent on U.S. economic prospects. In addition, there are a number of other factors and forces that will contribute to higher gold prices in the years ahead. We’ve discussed these at length in past reports and will have more to say in the future. Briefly, these include:

-Continuing long-term growth in jewelry and investment demand from both China and India as well as from other gold-friendly Asian countries - even if economic growth slows in these economies . . . and despite short-term resistance to higher prices as we have seen lately in India.

-Rising participation and gold ownership by retail and institutional investors in the United States and Europe as more savers and investors recognize the legitimacy and benefits of gold.

-Continuing official-sector gold purchases from central banks underweighted in gold (particularly China and Russia), uncomfortable with their excessive U.S. dollar exposure, and no longer comfortable accumulating euro-denominated reserves.

-Further monetary stimulus from the European Central Bank as recessionary business conditions worsen - and the likely exit from the Eurozone of one or more periphery nations that are socially and politically unable to endure the consequences of austere fiscal policies.

Jeffrey Nichols, Managing Director of American Precious Metals Advisors, has been a leading gold and precious metals economist for over 25 years.

(Courtesy: NicholsonGold) 


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