From today Cannacord Pescod newsletter. 

GOLD:

be right...for years he has been predicting a recession and

now we might well be there.

Meanwhile, the good folks at National Bank make another

projection as they raise their target on gold from $900 an

once to $1500 an ounce. They point to five different upside

pressures on the price of gold the first being financial instability

and massive bank writedowns. He writes, “With the

implosion of the U.S. housing bubble, the emergence of a

credit crisis and the spectre of U.S. recession, volatility has

returned to capital markets with a vengeance.”

Secondly, they point to massive injections of liquidity and

a return to negative real interest rates. Gignac writes,

“Historically, negative real interest rates have been a major

boost to the price of gold.”

A third factor is the decline of the value and role of the

U.S. dollar.

A fourth factor and something that’s not talked about

much recently is the swelling U.S. budget deficit and inflation

expectations.

His fifth point was increased financial demand for gold as

a distinct asset class and points out that “Among the financial

innovations of recent years is the gold ETF—exchangedtraded

bullion fund—as an instrument of portfolio diversification.

Physical holdings of gold through gold ETF’s now

amount to more than 800 tonnes—more than the total billion

reserves of the European Central Bank.”

The bottom line Gignac writes, “We think gold has attractive

potential for appreciation and, especially, as a tool for

medium-term portfolio diversification via gold stocks or gold

ETF’s. The current price of crude oil, around $90 a barrel, is

about the same in constant dollars as the late-1970’s high.

Our new gold target of $1500 an ounce is still far from the

early-1980’s high of $2200 in constant dollars.”