Hathaway – Gold To Hit New All-Time Highs, Despite Pullbacks
October 10, 2012
With gold still trading near the $1,760 level and silver close to $34, today King World News was given exclusive distribution rights to this rare piece by superstar John Hathaway of Tocqueville Asset Management L.P.. John is without question one of the most respected institutional minds in the world today when it comes to gold and his fund was awarded a coveted 5-star rating by Morningstar.
By John Hathaway, Tocqueville Asset Management L.P.
October 10, 2012 (King World News) – Gold and precious metals stocks rallied sharply in the third quarter. The rally suggests that the lengthy correction which began in August of 2011 has been completed, setting the stage for a powerful new leg in the bull market for precious metals and related mining shares. During the quarter, the metal rose 10.9% to $1,772/oz. while the XAU index rose 21.7% to 191. Since mid-May, precious metals shares as measured by the XAU have outperformed gold bullion, with the XAU index rising 35.9% against a 14.8% advance for the metal. Outperformance by the shares over the metal has historically coincided with the strongest advances in both absolute and relative terms for the precious metals complex.
The trigger for the strong advance was the overt resumption of quantitative easing by the Fed and ECB in late August. The resumption of aggressive monetary easing, in our opinion, had been foreshadowed by the failure of gold to make new lows after repeated denials by the Fed during the first half of 2012 that such action was “off the table.” As we opined in 1Q12 and 2Q12 quarterly commentaries, as well as our web site article Gold, Gold Mining Shares, and QE; gold’s resilience in the face of superficially “bad news” was signaling that repeated Fed disavowals of the need for more monetary stimulus would prove to be misguided and misleading.
Where do we go from here? We expect gold to trade at new highs against the $US in the next twelve months. It is already trading at record levels against the euro. We believe that precious metals stocks will rally strongly once the metal shows that it can breach the previous high and trade sustainably in new high territory. It has been our conviction over the past year that the main thing ailing precious metals stocks was market uncertainty as to the future direction of the gold price. The headwind of a year-long correction in the metal prices was the principal reason for the dismal performance of mining shares. All of the other reasons advanced to explain the poor performance of the shares was, in our opinion, sell-side research gibberish that extrapolated past transgressions of the mining companies into future expectations. For this reason, we believe that a more favorable perception of the condition of the gold bull market will translate into outsized relative performance for the mining shares.