Mineweb - USA - Gold - "Never stand in the way of raging bull" or should it be "caveat emptor"?

Mineweb - USA - Gold - "Never stand in the way of raging bull" or should it be "caveat emptor"?: "Gold - 'Never stand in the way of raging bull' or should it be 'caveat emptor'?

Advice from Jeff Nichols on the current bull run in the gold market and the state of the global economy as inflation fears continue to develop.
Author: Lawrence Williams
Posted: Wednesday , 18 Nov 2009

LONDON -"
Commenting to Rosland Capital, for which he is Senior Economic Advisor, gold guru Jeff Nichols of American Precious Metals Advisors has come up with some interesting comments on the current bull run in the gold price, but tinged with some warnings on possible corrections, as well as comments on the Central Banks purchase position and the economy in general..
"While a golden rule in the current precious metals market is ‘Never stand in the way of a raging bull,' investors should also note the other adage of ‘Caveat Emptor' or ‘Buyer Beware.'" says Nichols. "So far, corrections have been brief with good support under the market from central banks and hedge funds using each pullback to accumulate metal."
"In addition, Barrick Gold, the world's largest gold-mining company, is committed to buying back its previous forward sales in order to maximize shareholder exposure to the expected rising price - and they, too, are likely buying on each dip. However, if these players stand aside for any reason gold prices could drop precipitously, and this would be an opportunity for investors to establish or augment their own positions."
It certainly has been noticeable that support has been quick to appear on every dip so far in the gold price which suggests that the heavy hitters are indeed anticipating further increases, although this has been coupled with a weak U.S. dollar which tends to be supportive of gold. Investor sentiment is certainly with gold for the moment.
One statement which did have a negative impact on the gold price, albeit a very brief one, was that the Russian State Depositary for Precious Metals and Gems was looking to sell between 25 and 50 tonnes of gold onto the open market, which seemed to be counter to the reported Russian intent to increase the size of its reserves. But in Russia nothing is that simple - even between state organisations - with a subsequent report by Russian News Agency Novosti that Alexei Ulyukayev, the first deputy chief of the Bank of Russia, said that the Bank was ready to buy any gold that may be sold by the State Depository, although this latter statement seemed to pass without much in the way of reaction from the market.
Nichols went on to comment on the most recent significant announcement of Central Bank gold purchases from Sri Lanka - "Last week's announcement from the Sri Lankan central bank about its own recent gold buying included news that other unnamed central banks were also accumulating gold in order to diversify official monetary reserves and reduce U.S. dollar risk. Before long, we should expect announcements of central bank gold purchases from one country or another - and this could trigger another quick jump in the price of gold, much like that which occurred after the Reserve Bank of India announced its 200 ton purchase of IMF gold".
"Speaking of IMF gold, there remains another 203 tons yet to be sold - and it will likely be taken by another country (or countries) swimming in a rising tide of unwanted U.S. dollars. China remains a prime candidate especially if it wishes to further register its displeasure with U.S. monetary, fiscal, and exchange rate policy."
In this instance, Nichols has been overtaken by events - at least marginally so - given that the IMF has announced that the tiny island nation of Mauritius has purchased 2 tonnes of its gold - a minuscule amount in relation to the international gold market but pretty significant for Mauritius itself where the purchase has more than doubled its gold holdings to 5.69 percent of its total foreign exchange reserves - still a tiny percentage in relation to some of the big percentage gold holdings of the U.S. and many European nations.
On U.S. economic policy, Nichols commented "Rising U.S. consumer price inflation is already in the cards, thanks to quantitative easing and rapid growth of U.S. government debt. In contrast, the Fed is hoping low rates of capacity utilization and high unemployment will keep inflation at bay. But, they are not factoring in either the continuing depreciation of the dollar or the stronger economic recoveries in China, India, Brazil, and other emerging economies - and the resulting price rises for oil and other commodities."
So far we have actually seen little or no sign of inflation in the major global economies with the potential inflationary impact of quantitative easing offset by a cross between recession and depression which has so far kept price increases very low, or even falling. But with signs that the recession - at least in technical terms - is ending for many countries and growth, however marginal, is again being achieved, inflationary pressures are certain to mount. While perhaps the hyperinflation predicted by some doom merchants still seems far away the threat remains and will likely continue to buoy up the gold market which thrives on uncertainty.