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GOLD @ US$1000   Jeffrey Nichols, Managing Director  American Precious Metals Advisors  Friday, March 7, 2008 

Gold continues to be underpinned by very strong supply/demand fundamentals (as outlined in our “Gold Review and Outlook – March 2008) – but it is fear, not fundamentals, now driving the gold market – and it will be fear that pushes gold well above the US$1000 an ounce level. The litany is well-known: Fear of a 1970s style stagflation – high inflation combined with recession or anemic economic growth – not just in the U.S. but in other key economies. Fear of rising oil prices. Fear of further U.S. dollar depreciation. Fear about the health of banks and other financial institutions. Fear that equity markets around the globe are in a free fall. Fear that economic policy makers (the Fed, the U.S. Treasury, other banking and financial market regulators, Congress, and the President) are incapable of responding appropriately to the current circumstances and challenges presented by the financial markets and the broader economy. These fears and expectations are driving down world stock markets and the U.S. dollar – and driving investors and speculators into gold as the ultimate hedge. Given the tiny size of the gold market relative to world forex and capital markets, a small change in sentiment can have a magnified effect on the metal’s price and accounts for much of the dayto-day price volatility. Increasingly gloomy U.S. economic indicators on employment, home sales, autos, and retail sales are pushing the Federal Reserve to adopt ever more stimulative policies despite high oil and commodity prices and accelerating consumer price inflation. But cutting interest rates and taking other steps to increase liquidity and lending will continue to be overwhelmed by rising pessimism and high prices for oil and other commodities. In fact, the recent increase in the price of oil – which transfers more dollars from energy consumers to overseas oil producers – has the same restrictive impact as a massive tax increase. As we have said before, the immediate problem is that the U.S. economy has entered a psychological liquidity trap of sorts. With banks and other lending institutions tightening standards for mortgages, auto loans, consumer debt and business borrowing . . . and increasing


their margins to rebuild capital, the traditional monetary policy tools are ineffective.  It’s as if  Fed is simply “pushing on a string”.   Instead of giving the economy a quick boost, the increased monetary stimulus is likely to lead to further dollar depreciation, continued high oil prices, and more consumer price inflation late this year and into 2009 – a surefire recipe for gold appreciation. We reiterate our forecast that gold prices are headed much higher with continued volatility around an upward trend. Fear has already driven gold up some 20 percent so far this year . . . and it won’t take much to boost the metal another 10 or 20 percent. Not only is gold likely to surpass US$1000 but gold at US$1100 or US$1200 seems increasingly likely. And, with the right confluence of economic and geopolitical developments we could see gold spike to US$1500 or US$2000 in the next few years.”   See our “Gold Review and Outlook – March 2008” or contact me by phone or email for more  details. All the best,

Jeff Jeffrey Nichols Managing Director AMERICAN PRECIOUS METALS ADVISORS office: 914-737-6655 / cell: 914-907-2022 / email: JNichols@MetalsAdvisors.com


Gold Hits US $1000 - March 2008