Gold has adjusted, smooth sailing aheadHathaway: Gold has adjusted, smooth sailing ahead
By: Dorothy Kosich
Posted: '09-JUN-04 08:00' GMT © Mineweb 1997-2004
SAN FRANCISCO (Mineweb.com) –The worst is over this year for gold and clear sailing is ahead, the portfolio manager of the Tocqueville Gold Fund told mining executives, analysts, and fund managers attending the San Francisco Gold Forum Tuesday.
Incredibly, contrarian investor John Hathaway predicted that “I expect four-digit gold prices before this is all over.”
Hathaway believes that the correction in the gold sector is over. He compared the current situation to the 1970s, a historical lesson “the knee jerk guys who dumped their gold two weeks ago” failed to consider. “In due course, history will reveal multiple deceptions at the core of the current bear market. In the 1970s, a short list would include the Watergate scandal, failure to communicate the war-time realities of Vietnam, and `Guns and Butter’ fiscal policies,” Hathaway wrote in a recent article. “Sky-high Fed Funds did not provide a positive yield due to an even higher rate of inflation. Real interest rate stayed in solidly negative territory from 1973 through 1981.”
Hathaway termed gold as a “seasonal investment.” However, that season could encompass decades as gold slumbers. Nonetheless, he added, no penalty exists for those who choose to hold onto gold. Current U.S. economic policy is “grounded in faulty measurements” in areas such as housing, the CPI, and other economic indexes, according to Hathaway. For instance, understatement of inflation by the CPI will ultimately disenchant investors. “An inaccurate read of inflation will justify prolonged monetary ease. A continuation or widening of the present disparity between nominal and real interest rates is an important premise for a commitment to gold,” Hathaway wrote in a recent article.
Hathaway contends that the “actual adjusted inflation rate is 20%-30% higher than financial markets would have us believe.” Since the feds “can, in no way, become aggressive in fighting off inflation,” Hathaway believes that we are in the early days of a protracted bull market. Because they will believe that the feds and financial markets have deceived them, he predicted that investors will turn to gold.
He was also critical of the financial media’s inability to recognize the value of gold. The financial media “has been written out of the script as far as understanding gold,” Hathaway declared. “Gold is, so far, out of the stream of consciousness of the financial press.” As an example, the financial media has failed to recognize the actions of foreign holders of U.S. dollars could prove to be an Achilles Heel for current U.S. fiscal policies. If foreign central banks decide to get rid of their U.S. dollars, he noted, it will have serious repercussions.