Newsletter Reviews

There is more to gold than mere capital appreciation

SOURCE: [The Gold Report] - John Hathaway, senior managing director of Tocqueville Asset Management, does not particularly trust banks to keep stores of physical gold safe and segregated. Indeed, he considers his black lab Jake a better watchdog than the SEC. That is why he favors the SmartMetals program from Hard Assets Alliance, a new service launched in July. Hard Assets Alliance has partnered with Gold Bullion International (GBI) to offer precious metal purchasing and storage solutions to retail investors. With more investors realizing that safety of capital is the real reason to own gold, safe storage is more important than ever. Read more in this exclusive Gold Report interview.

The Gold Report: John, you predicted $2,000/ounce (oz) gold prices. After rising to $1,900/oz last fall, the price has hovered at $1,500–1,600/oz much of 2012. What will cause it to take the next leg up?

John Hathaway: There are several factors that I think will drive gold higher. On the monetary side, central bankers and treasury secretaries are bobbing and weaving, making it up as they go. They lack a comprehensive solution to the sovereign debt crisis in Europe, to the forces that are pulling the Eurozone apart or to the stagnation in the world's key economies. Ultimately, all of this will further debase the value of paper currency.   More quantitative easing may also be on the table, and I have read a good deal about taking nominal rates to less than zero. That would mean people who have money in savings accounts would be charged a fee for keeping the money, as opposed to earning interest. It would not surprise me to see that evolve as a way to get all of these free reserves in the banking system into the economy.

TGR: How soon might that happen—in the coming months, by the end of 2012, in 2013?

JH: It is hard to say, but we are at a pivotal point. The economic reports are very lackluster. The headlines out of Europe continue to be, at best, dismaying. The upcoming U.S. presidential election complicates things. The Federal Reserve probably does not want to do anything that would be construed as tilting the election one way or the other.   Gold has been correcting for almost a year now. Last August, it reached $1,900/oz. It has had every opportunity to sink below the low it made at the end of 2011. Basically, the price has been in sideways movement for the last seven months.   I see gold coiling, moving into stronger and stronger hands. There are not many sellers left. People who wanted to sell it have and have gone on to other things. I am more and more encouraged that the downside to gold is limited; it is all about the upside. I would say $2,000/oz gold is very close.

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