Jim Rickards: Gold Likely To Trade Sideways For Most Of 2013

Related to the volatility in gold (and silver) recently, Jim Rickards said during his latest CNBC interview that fundamentals prevail in the long run but that technicals can control the price in the short run.

First there was the negative report from Société Générale followed by the one from Goldman Sachs and the news that Cyprous would sell its gold. The crash in the gold (and silver) price on April 15th / 18th resulted in panick. The strong hands (i.e. China) did not place bids so the price of the yellow metal kept on falling.

We are now in a transition period from weak hands to strong hands. Sellers include Comex traders who have margin calls and stops, hedge funds that have non-permanent capital and gold exchange-traded fund GLD.

The strong hands are Russia, China and actually people around the world. They lined up to buy physical beginning on April 16.

Rickards believes that the gold fundamentals are intact, the technicals are running out and the trend is higher from here.

On the question what deflation means for gold, Rickards answers that gold traditionally performs well amid deflation, as well as inflation. In the deflationary period of the 1930’s gold went up 65%. The problem is when central banks fear deflation more than anything, they try everything to defeat it: currency wars, money printing, zero-interest-rate policy, forward guidance, twist. When they can’t win the battle against deflation, they devalue the currency against gold because gold is the only thing that can’t fight back.

If the Fed wins, we will get inflation and gold will go up. If deflation prevails [central banks] will wake up one day and say gold is $4,000 an ounce, we’re a buyer at $3,995.

On the question where gold will trade for the rest of this year, Rickards is convinced that gold will go sideways this year and that it will go up next year. He also believes inflation is coming with a lag.

As we noted previously, gold is always rallying somewhere. Rickards was referring to dollar gold price in this interview.  Presumably yen gold or sterling gold could move up while dollar gold is trading sideways in 2013.

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