There is potential for a strong upward move in gold whenever the market reverses higher for the longer term, says Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic adviser to Rosland Capital. The metal has come under pressure on negative sentiment from bullion banks, hedge and commodity-focused funds and other institutional speculators, he says. “At the same time, a very much larger group of gold-market participants – numbering in the millions – have been acquiring huge quantities of physical gold and continue to do so even as bearish speculators drive the metal’s price lower,” Nichols says. “This group includes retail buyers of coins, small bars, and investment-grade jewelry in India, China and even Western markets. It includes Swiss gnomes and Arabian sheikhs, sovereign wealth funds and super-rich family offices, and a number of central banks that are under-weighted in gold and, at the same time, distrustful of the U.S. dollar. What’s more, clients should be cognizant of the fickle short-sightedness of today’s gold bears: They may be here today, pushing prices lower, but they will be gone tomorrow, when it looks like price momentum and their technical trading models have shifted gears from ‘reverse’ to ‘drive.’ Importantly, the accumulation of physical metal by the gold bulls is very long-term in nature and much of these holdings will never come back to the market. This suggests that as the gold market shifts direction, there exists the possibility of surprisingly strong upward pressure on the metal’s price.”
