John Hathaway continues:

“So I think that mess is going to say with us for a very long time.  I don’t know how it’s going to be resolved, but I do think it is very constructive for gold because what you are seeing is the demotion of a reserve currency from a safe status, to something less than that. 

And if Germany leaves the euro, that’s a very climactic kind of market event.  But no matter what policymakers try to do, they cannot put Humpty Dumpty back together again.  Confidence has been severely damaged, and the process of rebuilding it is almost impossible.

When the situation reaches this type of level, gold has always been invited back into the system....

Continue reading the John Hathaway interview below...


To hear which company has one of the highest grade gold deposits

in the entire world, as well as a number of other

extraordinary projects click on the logo:

“That’s a huge win for gold in the way it’s viewed.  What price does that mean?  I don’t know, but it’s certainly going to be much higher than what we are seeing today.

Unfortunately, the thing that brings gold back into the picture is usually something bad in the financial markets.  Certainly that was the case in 2008, and that’s where we’re headed again.  Let’s face it, the euro is a lot bigger deal than Lehman Brothers and the subprime credit mess.

One thing that came out of 2008 was that the default reaction of policymakers to that kind of market environment is to print.  We’ve seen Bernanke deny, on several occasions, that he would ever extend quantitative easing, and then, lo and behold, at the last Fed meeting we extended QE in the form of Operation Twist.

So these guys (central planners) are scrambling and they don’t really know what they are doing.  They are making it up as they go along, that’s clear to me.  When this does get worse, you can be sure the bazookas (printing money) are going to be lined up and firing at high speed.  But when the smoke clears, on the other side of that, gold is going to be the high ground.

So investors need to be prepared for the chaos to accelerate.  And as I said, the other side of the equation is gold is going to be the high ground and the potential in terms of pricing in dollars or euros or any other currency you can name, is going to be something that I’m even afraid to mention because it’s going to be such a big number.”

Hathaway also added:  “The ray of sunshine is the reintegration of gold back in to the financial system.  I am seeing increasing discussions, on both sides of the Atlantic, of elevating the status of gold as a reserve asset.  There are proposals, under Basel III, to increase gold’s status from a Tier-3, to a Tier-1 asset.  So gold will become ‘good collateral,’ meaning you don’t have to haircut it.  It’s good capital.

How the banks buy it is another story, but it certainly makes it a more desirable asset.  The same discussion is ongoing at the FDIC.  They are now saying gold is a desirable asset and it’s a good part of bank capital.  So this almost seems like a coordinated effort.

When you think about it, what collateral do banks have?  What makes them credit-worthy?  In Europe they’ve got sovereign credits that are of very dubious value, and that used to be considered Tier-1.  It’s still considered to be Tier-1, but as we know it’s junk.  So I think regulators are starting to look for what is good collateral?  What is a good reserve asset?

So I’m seeing a lot of signs that gold is being rethought at the regulatory and the official level.  In terms of what’s out there, you have the potential disillusion of the euro, which at its core is very constructive for gold.

In that scenario, people would have money in deutsche marks, which would be the only island of safety left in the eurozone.  People will ask themselves, ‘How safe are bunds when Germany is about to cut its ties to the euro?

I think gold being viewed as a desirable asset by the banking industry, and being told to view it as a desirable asset, is a big, big change.  With all of the chaos in Europe and eventually the US, I think it will leave gold as the last man standing.  I think that’s where we’re headed. 

One way or another there is such great uncertainty that people must be thinking about gold when they have liquid assets.  So how do we view this market action in gold?  I think it’s just one more part of a test that goes into making an important bottom.

So far, the low of last December is still intact.  We have to go through this test in coming days, but my working hypothesis is that low of last December was a good low and we are just in the process of shaking out all of the weak holders of gold.  I think gold is much better held today than it was six months ago or even ten months ago.

If you want to look out a year or two, this all has to lead to more money printing and less confidence in paper currencies.  So I would just encourage investors, in this choppiness, to initiate exposure in gold or to add to it.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with legendary Art Cashin ($612 billion UBS), Jean-Marie Eveillard (oversees $50 billion) and Don Coxe ($538 billion BMO) are available now.  Also, be sure to listen to this week’s line-up of other KWN interviews which include Ben Davies, Nigel Farage, James Turk, John Mauldin, Egon von Greyerz and Gerald Celente by CLICKING HERE.

Eric King

To return to BLOG click here.

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,

rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

Subscribe to RSS
KWN Blog