What he thinks about the sharp decline in the dollar price.

ALEC HOGG: Jeff Nichols is one of the experts in the gold field in the world, and I caught up with him yesterday to find out what he thinks about the sharp decline in the dollar price.
    "Well, Jeff, as we are looking at the gold price today, it's down $100 from the peak that it hit just a few days ago. Some people are baffled by this - you aren't?

"JEFF NICHOLS: No, not at all. Firstly let me say that I think the market was overbought and due for a correction, and if we had gone up to today's level without going up higher, people would be raving about how high the price is. But now that it has come back down from what was really a price too soon, too fast, people are worried. I think that the basic drivers of higher gold prices for the next few years are really still in place and will remain so for some time to come.

"ALEC HOGG: Its been interesting noticing people like Nouriel Roubini entering the debate on gold. I'm not sure if you had an opportunity to read his arguments and, if so, if you've got any thoughts.

"JEFF NICHOLS: Well, I think he's missing the real point. The reason that gold is going higher is not only because of macroeconomic fundamentals, which he may be looking at, but because of important changes within the gold market itself - the reversal of central-bank attitudes towards gold, and the accumulation now of gold by the official sector after decades of being a seller. That would be one point. Another is new investment vehicles that are attracting new players, particularly institutional and hedge-fund players that previously had legal barriers to investing in gold.
    And I think also he's missing what's going on in China. China is a fantastic potential market for gold. Inflation is beginning to rise, there's a growing middle class, and importantly the government is endorsing private gold investment for the first time in 50 years. As a result gold investment bars are now available at banks and retail shops across the country. And it's just the beginning, the tip of what China will bring to the world of gold. I think he's also missing the fact that mine production is diminishing - it has been for many years, and it will continue to fall even with increases in China, Russia and South America over the next few years. Total world gold mine output is going to continue declining for at least five years, and probably much longer.
    And then too, gold is an emotional metal, and I think emotions are increasingly negative. People are losing faith already in the Obama administration here in the United States, people are worried about the cost of healthcare. However that evolves, foreign central banks and private investors are distrusting the dollar like never before. I think these are the points that he's missing.

"ALEC HOGG: Just to dwell in China, if we can, Jeff. You do visit there fairly regularly. We've had here in South Africa quite a lot of propaganda from the platinum guys, who say that platinum jewellery sits better on an Oriental skin than gold jewellery does, and as a result they were saying that is why there is so much platinum jewellery being sold into China. Clearly you are talking about the investment attractions of gold, but on the jewellery side, is that propaganda, or is that accurate? ..."

ALEC HOGG: Well, you can hear the answer to that question by going on to Moneyweb. We've got the full podcast of that interview, which is about 12 minutes. It's transcribed and it appears on Moneyweb right now.

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The SAfm Market Update with Moneyweb is broadcast on SAfm 104-107fm, weekdays at 18:00 to 18:30.

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