By Dan Weil

Gold prices gained 10 percent last year and have jumped another 10 percent so far this
year.

Many analysts attribute the rise to central banks, saying their accommodative
monetary policies have debased currencies, pushing investors to the precious
metal.

But many investors may not realize that central banks are buying gold
themselves, playing a major role in the metal’s rally.

Just five years ago, jewelry accounted for two-thirds of gold demand. Last
year, it represented less than half, according to the World Gold Council, The
Wall Street Journal reports.

That demand has shifted partly to investors. Demand for physical gold and
exchange-traded funds surged 9.4 million ounces between 2009 and 2011. That
more than made up for the 6.6-million-ounce plunge in jewelry demand.

But most of that demand came in 2009. Gold flow into ETFs slipped in 2011.

Enter the central banks, especially those in emerging markets. They have
stepped in to snap up available gold supply, buying 11.7 million ounces last
year.

So gold bulls should thank central banks twice – once for pursing policies that
boost the precious metal’s price, and once for purchasing it themselves.

Many investors, including hedge fund legend John Paulson, expect further gains
by gold.

“By the time inflation becomes evident, gold will probably have moved, which
implies that now is the time to build a position in gold,” he writes in a
letter to investors obtained by Bloomberg.

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THE GOLD REPORT  13 February 2012

PUBLISHER of The Grandich
Letter, Peter Grandich, predicts the Gold Price
will hit $2350 per ounce. In this interview with The Gold Report  he
shares his reasons…

The Gold Report: Going back to your time as a fund manager in the ’80s on Wall Street, how
does what was happening then compare with what is happening now?

Peter Grandich: It’s dramatically different. The biggest change is that the game is
stacked against the average investor more so than at any other time. For
example, the mortgage debacle a few years ago was equivalent to all the big car
companies manufacturing cars that they knew were going to crash and buying life
insurance on the people that they sold the cars to knowing that they would die
so they could collect on both ends. That’s what the financial institutions did.
Those people are still in charge of the game. I take exception when I hear
people talking as if the game is fair and the average person has a reasonable
chance.

TGR: One revelation in your
book is that your struggles led you to a belief in Christianity. Does your
spiritual life influence your investment decisions?

Peter Grandich: Yes. There’s far less chance of me pushing the envelope and touching the
gray area—or even going into the red area.

TGR: Another theme in the
book is about being wrong and accepting that as an investor. Could you talk
about the psychological pitfalls of investing?

Peter Grandich: I could write a book about losing. The ultimate crime of investing is not
being wrong. The crime is staying wrong and that happens to a lot of investors.
They institute the worst investment strategy and simply hope things will
change. Hope is a wonderful spiritual strategy but a very bad investment
strategy.

The majority of investors usually can withstand the
financial risk that they’re taking, but greatly underestimate the mental
anguish that can come from the downside of what their investments or
speculations/gambling will bring. Wall Street created the word “speculating”
so that it doesn’t have to use the word “gambling,” but it’s
gambling. You have to be prepared to lose part or all your money when you
gamble and I don’t think most investors are. They think of the best possible
scenario and never think of the worst.

Most investors don’t operate with a real plan either.
That’s why they lose over time because they don’t have a written strategy and
instead choose emotions and day-to-day, seat-of-their-pants thinking.

TGR: At the Cambridge
House investment conference in Vancouver, you said that you don’t look fondly
upon the economic outlook for the US, but you remain bullish on some foreign
markets, especially China. China’s markets lack transparency and even some
Chinese companies listed on North American markets have proven to be less than
trustworthy. Are you sending investors into the lion’s den?

Peter Grandich: It’s foolhardy to think that the US is the safest place and China’s the
worst place to invest in equities. There’s no question that China’s going
through some growing pains. But there are also shady things that go on here in
the US that don’t get reported or are twisted.

It’s no longer a question of if China will become the
world’s largest economic power, but when. To not have exposure to Chinese
equities over the next several years would be like not getting exposure to US
equities during our greatest growth in markets from the ’50s–’90s. And right
behind China will follow India. If we don’t have exposure to China and India
and the companies that do business there over the long term, we’re
shortchanging ourselves.

TGR: You expect the US
Dollar to weaken once attention shifts away from the troubled Euro. At that
point, do you expect gold to have a sizeable run?

Peter Grandich: I have called this the mother of all gold bull markets. I don’t think we’ll
see a bull market like this again in our lifetime. However, it’s also been the
most stealth bull market. North Americans, and particularly Americans, have
shown little or no participation, yet the Gold Price
has increased five to six fold. All the fundamentals remain in place: central
banks have gone from big sellers to net buyers and major producers don’t
forward sell much anymore.

The news that the Fed plans to continue flooding the
system with cheap paper is just another example of why gold’s path of least
resistance is to the upside. I believe an all-time high, not just a nominal
high, but adjusted for inflation, could reach $2,350–2,500/ounce (oz).

The mother of all gold bull markets remains intact. The
bears have once again been bloodied and they’ll go into hiding until we go
through $2,000/oz and then they’ll come out again. Then the media will flock to
them to tell us for the 19th time why gold has topped out.

TGR: Thanks for sharing
your forecast.

06 February 2012, 9:16 a.m.

By Kitco News

By Forrest Jones

Gold may have dropped 21 percent in the fourth quarter of 2011 but such corrections,
albeit scary, are normal for assets experiencing long periods of strong gains
made bumpy by speculators, experts say.

Gold is already up five percent in the new year, compared to a 3.9 percent
return for the S&P 500 index, and despite the plunges late last year, gold
finished 2011 up 10 percent.

Stocks were largely flat last year.

“In my view, gold is still very much in a super bull market,” says
Alan Newman, who has long recommended the metal in his CrossCurrents
newsletter, CNBC reports.

“Last year’s activity was quite normal for a super bull market, in which
corrections are supposed to be scary.”

Gold tends to drop in January, falling 8 percent in January 2011 and 12 percent
in two weeks at the end of 2009.

In 2011, it came in December as investors wanted it off their books.

Still, analysts at global financial institution Goldman Sachs say gold will
climb in 2012 as will copper and oil.

“The economic data and outlook beyond Europe in the U.S. and Asia has been
improving, shifting demand risks to the upside,” Goldman says in a report,
according to Bloomberg.

“We view gold and copper as providing the best value opportunities
relative to our view of fundamentals in 2012.”

Loose monetary policies in the U.S. and around the world have flooded the
global financial system with paper currencies, and it will take time to mop up
all that liquidity.

Weaker paper currencies — the dollar especially — often sends gold rising.

“The balance sheets of the Federal Reserve and ECB have never been greater
and both will continue to increase in size,” says Peter Boockvar of Miller
Tabak, CNBC adds.

“The Bank of Japan, the Bank of England and the Swiss National Bank
continue to print large amounts of money. As long as ‘print and inflate’ is
policy this bull market in gold will continue.”

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