It looks like someone linked you here to our printer friendly page. Please make sure you go Back to Safehaven.com for more great articles just like this one!

Why Gold MUST Go Higher

By: Adrian Ash | Wednesday, December 19, 2012

Ooops! Just when everyone said gold must go higher - immediately...!

Markets are made of opinions, some better than others.

There are always plenty of opinions about gold. And right now they're clearly making the market. Just not in the way you would think.

"There are too many bulls, including me," warned hedge-fund and commodities legend Jim Rogers to CNBC overnight. He advises caution if you're buying gold on this drop. Unlike most everyone else.

Swiss bank UBS last week kept its 2013 forecast for gold to average $1900 per ounce - a rise of 14% from the 2012 average so far - while fellow London market-maker Barclays now sees gold averaging $1815 next year, a snip off its previous 2013 forecast.

Investment bank Morgan Stanley takes "a bullish view", as does Bank of America. It thinks gold will average $2,000 next year, rising to $2,400 in 2014. Whereas Capital Economics (who have an opinion on pretty much anything and everything) predict a peak of $2,200 in late-2013, some 10% above their previous guesstimate.

Never mind that 2013 used to mean $2,500 per ounce for the London-based consultancy. That was back in 2011. And like many a gold bull right now, Capital Economics reckons the treatment of gold under the world's banking rules - aka, Basel III - could "provide an important psychological lift to the market."

How come? "European regulators appear increasingly willing to recognise gold as a high quality liquid asset," explains today's note from Julian Jessop, head of commodities research, pointing to a much-discussed - but little understand - change in banking regulation.

"Others are likely to follow. Increased demand for gold to meet the tougher liquidity requirements could then go some way towards mitigating what might otherwise have been a large downside risk when the authorities do eventually take away the exceptional liquidity they have provided to the banking system."

You can find the same opinion - only with less understanding, subtlety or caveating - pretty much across the internet. Beware any "analyst" who says gold is about to become a "Tier 1" asset (that refers to capital reserves, not liquidity). Also beware if they claim it's about to happen, like immediately, starting on New Year's Day!

Because most of the developed world struggled to implementing Basel II - the last set of agreed principles. Putting Basel III into place by 2013 is now an "ambition" most national regulators have delayed and deferred well into the never-never. And gold's new status under those rules is still very far from certain. It may perhaps be valued at 50% of its price when regulators count up the liquid reserves a bank holds. Or it might yet get carried at 100% of market-price, causing a headache for the beancounters as the price moves up (or down - shhhh!) minute by minute.

Still, the possible re-assessment of gold as "a high quality liquid asset" would mark a significant step after 12 years of annual price gains. It would mark gold's "growing use as collateral", as Capital Economics say. That would mark a new stage in gold's return to the banking system from hated, under-priced and un-holdable relic. Not dissimilar, perhaps to gold's return as an investable asset for US citizens on New Year's Day 1975.

For more than three decades gold bullion had been illegal to own in the United States. Gerald Ford's executive order to remove that block clearly helped the long 1970s' bull market run on towards its big 1980 top. US savers had already missed out on a five-fold gain. Now the wealthiest savings market in the world could participate in the inflation-fuelled gold bull market at last!

But ooops...

Gold Fixing Price

"Gold rose 600% in the 1970s," said Jim Rogers back in 2007. "Then gold went down nearly every month for two years. Most people gave up."

You can't blame investors who quit the gold market between 1975 and 1977. The gold price fell very nearly in half after all. But that is simply "what happens in bull markets," said Rogers. And between 1977 and 1980, "gold went up another 850%."

Fast forward to end-2012, and "Gold is having a correction," said Jim Rogers last night. "It's been correcting for 15-16 months now, which is normal in my view, and it's possible that [the] correction is going to continue for a while longer."

And just in time for the much-hyped entry of new commercial bank buyers, too. Or so says this opinion.

 

Author: Adrian Ash

Adrian Ash
BullionVault.com

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the head of research at BullionVault, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the secure, low-cost gold and silver exchange for private investors. It enables you to buy and sell professional-grade bullion at live prices online, storing your physical property in market-accredited, non-bank vaults in London, New York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people from 97 countries used BullionVault, owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical silver (US$129m) as their outright property. There is no minimum investment and users can deal as little as one gram at a time. Each user's unique holding is proven, each day, by the public reconciliation of client property with formal bullion-market bar lists.

BullionVault is a full member of professional trade body the London Bullion Market Association (LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development body the World Gold Council (www.gold.org) joined with the internet and technology fund Augmentum Capital, which is backed by the London listed Rothschild Investment Trust (RIT Capital Partners), in making an $18.8 million (£12.5m) investment in the business.

For more information, visit http://www.bullionvault.com

© BullionVault 2006-2014

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events - and must be verified elsewhere - should you choose to act on it.