Jeff Nichols

The Battle of the 'Flations

Gold as a deflation hedge:

During periods of deflation, we postpone spending in anticipation of lower prices. Instead, households hoard cash and cash-equivalents such as short-term U.S. Treasury debt, bank deposits, and money-market instruments. Gold is also a cash-equivalent . . . and some will choose to hold more of their savings in the yellow metal, particularly during times of economic stress and uncertainty when gold just feels safer.

Moreover, deflations are also characterized by very low interest rates. Rates are low because the demand for credit is depressed, savings are high, and the Federal Reserve and other central banks will pursue low reflationary interest-rate policies to encourage economic recovery.

As a result, the opportunity cost of holding gold – that is, the income forgone by holding these metals rather than interest-bearing assets – is also extremely low, further encouraging some investors to favor the precious metal over alternatives because of its other attractions and attributes.

For more on gold, deflation, inflation and the economic outlook, see my blog, NicholsOnGold.com

Russia's Economic and Financial Meltdown Continues Swiftly

I wonder if Russia has also been liquidating it's official gold reserves and any metal held in its sovereign wealth fund. Any thoughts? Let me know at [e-mail]... Thanks.

Some Lessons on Beating the Deflation Trap

I believe we will see a longer, deeper decline in business activity than most, lasting into late 2009 or, more probably, 2010 — and likely to be accompanied by some of deflation, particularly in commodities, food, autos, and a variety of consumer goods. To be honest, deflation has been with us for some time already, first in real estate markets, then on Wall Street, more recently in oil and commodity markets, and, as anyone shopping for the holidays will soon notice, in many retail stores. As I review on my blog, NicholsOnGold.com, gold is proving to be an effective deflation hedge . . . and when the economy switches into forward gear and inflation replaces deflation, gold will shine still brighter.

ScotiaMocatta: Gold Trends to Snowball

Monetary Reflation Today, Price Inflation Tomorrow

(Excerpted from speech to China Gold Summit, December 4, 2008, Shanghai -- by Jeffrey Nichols, managing director of American Precious Metals Advisors and NicholsOnGold.com)

I remain bullish on gold because — even as the global economic recession deepens — governments will find the only way out of this mess is to print more money. In other words, to inflate.

The United States Treasury and the Federal Reserve have already thrown a few trillion dollars, more or less, into the banking system and are now also lending directly to businesses and households. And, there’s surely much more to come when the next Administration moves into Washington.

It’s not only the U.S. monetary authorities pumping up the money supply. Their counterparts in every major economy – including the United Kingdom and the Euro zone, China, Russia, Japan and on and on – are doing likewise.

We have never in the history of money seen such an expansion in its supply without, after a period of time, a rapid deterioration in its value – in other words, without a rapid increase in the overall price level. More than any other factor influencing the gold market, it is the inevitable devaluation of money and the corresponding rise in price inflation that will propel gold skyward in the next few years.

As sure as day follows night, reflationary monetary policies — however necessary — have long-term implications for global inflation. Typically, monetary creation affects price inflation with a lag of six months to a couple of years – and in the current environment, the lag could be still longer . . . so it may be some time before inflation is recognized as a serious problem. But gold prices have shorter lags and could begin moving up before rising inflation becomes apparent or worrisome.

Longer term, gold-price prospects remain as bright as ever — and I firmly believe we will see record high prices in the next few years with gold back over $1000 an ounce in the coming year.

With the right confluence of economic and geopolitical developments we should see gold break through $1500, then $2000, and possibly still higher round numbers in the next few years – particularly if we get the type of buying frenzy or mania that often occurs late in the price cycles of financial and commodity markets.

This is hardly an audacious forecast when looked at relative to the upward march in consumer prices over the past 28 years. After all, the previous high of $875 an ounce in January 1980, when adjusted for inflation since then, is today equivalent to more than $2200.

Let me end with a warning about the days and weeks ahead. In the short term, gold remains volatile and vulnerable, if only because market psychology is nervous, anxious, and fearful. In this environment, we could still get a quick sell-off that would bring us back to the recent lows. But, day by day, I think that becomes less likely and, day by day, I think the base is building for a lasting longer-term recovery.

The Dollar Gets Slammed

Monetary Reflation Today, Price Inflation Tomorrow

(Excerpted from speech to China Gold Summit, December 4, 2008, Shanghai -- by Jeffrey Nichols, managing director of American Precious Metals Advisors and NicholsOnGold.com)

I remain bullish on gold because — even as the global economic recession deepens — governments will find the only way out of this mess is to print more money. In other words, to inflate.

The United States Treasury and the Federal Reserve have already thrown a few trillion dollars, more or less, into the banking system and are now also lending directly to businesses and households. And, there’s surely much more to come when the next Administration moves into Washington.

It’s not only the U.S. monetary authorities pumping up the money supply. Their counterparts in every major economy – including the United Kingdom and the Euro zone, China, Russia, Japan and on and on – are doing likewise.

We have never in the history of money seen such an expansion in its supply without, after a period of time, a rapid deterioration in its value – in other words, without a rapid increase in the overall price level. More than any other factor influencing the gold market, it is the inevitable devaluation of money and the corresponding rise in price inflation that will propel gold skyward in the next few years.

As sure as day follows night, reflationary monetary policies — however necessary — have long-term implications for global inflation. Typically, monetary creation affects price inflation with a lag of six months to a couple of years – and in the current environment, the lag could be still longer . . . so it may be some time before inflation is recognized as a serious problem. But gold prices have shorter lags and could begin moving up before rising inflation becomes apparent or worrisome.

Longer term, gold-price prospects remain as bright as ever — and I firmly believe we will see record high prices in the next few years with gold back over $1000 an ounce in the coming year.

With the right confluence of economic and geopolitical developments we should see gold break through $1500, then $2000, and possibly still higher round numbers in the next few years – particularly if we get the type of buying frenzy or mania that often occurs late in the price cycles of financial and commodity markets.

This is hardly an audacious forecast when looked at relative to the upward march in consumer prices over the past 28 years. After all, the previous high of $875 an ounce in January 1980, when adjusted for inflation since then, is today equivalent to more than $2200.

Let me end with a warning about the days and weeks ahead. In the short term, gold remains volatile and vulnerable, if only because market psychology is nervous, anxious, and fearful. In this environment, we could still get a quick sell-off that would bring us back to the recent lows. But, day by day, I think that becomes less likely and, day by day, I think the base is building for a lasting longer-term recovery.

The Dollar Gets Slammed

Monetary Reflation Today, Price Inflation Tomorrow

(Excerpted from speech to China Gold Summit, December 4, 2008, Shanghai -- by Jeffrey Nichols, managing director of American Precious Metals Advisors and NicholsOnGold.com)

I remain bullish on gold because — even as the global economic recession deepens — governments will find the only way out of this mess is to print more money. In other words, to inflate.

The United States Treasury and the Federal Reserve have already thrown a few trillion dollars, more or less, into the banking system and are now also lending directly to businesses and households. And, there’s surely much more to come when the next Administration moves into Washington.

It’s not only the U.S. monetary authorities pumping up the money supply. Their counterparts in every major economy – including the United Kingdom and the Euro zone, China, Russia, Japan and on and on – are doing likewise.

We have never in the history of money seen such an expansion in its supply without, after a period of time, a rapid deterioration in its value – in other words, without a rapid increase in the overall price level. More than any other factor influencing the gold market, it is the inevitable devaluation of money and the corresponding rise in price inflation that will propel gold skyward in the next few years.

As sure as day follows night, reflationary monetary policies — however necessary — have long-term implications for global inflation. Typically, monetary creation affects price inflation with a lag of six months to a couple of years – and in the current environment, the lag could be still longer . . . so it may be some time before inflation is recognized as a serious problem. But gold prices have shorter lags and could begin moving up before rising inflation becomes apparent or worrisome.

Longer term, gold-price prospects remain as bright as ever — and I firmly believe we will see record high prices in the next few years with gold back over $1000 an ounce in the coming year.

With the right confluence of economic and geopolitical developments we should see gold break through $1500, then $2000, and possibly still higher round numbers in the next few years – particularly if we get the type of buying frenzy or mania that often occurs late in the price cycles of financial and commodity markets.

This is hardly an audacious forecast when looked at relative to the upward march in consumer prices over the past 28 years. After all, the previous high of $875 an ounce in January 1980, when adjusted for inflation since then, is today equivalent to more than $2200.

Let me end with a warning about the days and weeks ahead. In the short term, gold remains volatile and vulnerable, if only because market psychology is nervous, anxious, and fearful. In this environment, we could still get a quick sell-off that would bring us back to the recent lows. But, day by day, I think that becomes less likely and, day by day, I think the base is building for a lasting longer-term recovery.

Google Docs Gives It Advantage Against Microsoft and Apple

Zack -- Good piece on Google vs. Microsoft. Google, with superior products and creative thinking, is giving Microsoft a run for its money . . . but it's going to be tough to dislodge Office from corporate office suites where IT pros are risk-averse and users enjoy the comfort of familiarity. The more Google gives its products the look and feel of MS Office -- particularly Outlook for email and tasks -- the more business users will migrate from Redmond to Mountain View. All the best -- Jeff (JNichols@NewFuturesMe...