Hathaway:  “I continue to be intrigued by the disconnect between physical and paper gold.  It’s a theme that just won’t go away.  One of the things that is striking to me is that if you talk about anything that’s considered to be a rarity like vintage sports cars, wines, art diamonds, etc, they’ve just skyrocketed in price....

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“And the front page story on that is money printing and unprecedented liquidity.  I guess the most topical example of that is Bitcoins.  In the last 2 years I think the price of a Bitcoin has gone from less than $25 to above $700. 

Gold has the same characteristics.  Gold is hard to find.  It’s scarce.  But gold’s price, if you take a 2 year period, it has fallen from $1,500 down to where we are today, which is about an 18% decline.  Yet the same headlines would be applicable for gold.  So the question people are asking is, ‘What is going on here?’

What is going on is that while physical gold is in very short supply, the ability to manufacture paper gold through these financial intermediaries like the Comex and the LBMA, and who knows what the banks do, seems to be, at least for the time being, unlimited.  Which one is right? 

We certainly know there is money printing.  And the things that benefit from that which I have just listed have all gone up tremendously in price over these last couple of years.  Gold is the glaring exception.  The only explanation is the wild west of macroeconomic trading that takes place in paper gold. 

This will come to an end and the price adjustment will be enormous, maybe even on the order of what has been witnessed in the Bitcoin market.  I’m not taking a stand on Bitcoins one way or the other.  I don’t even begin to understand it, except they are limited in supply and the get tougher and tougher to mine every year.

Well, that’s true of gold too.  There have been no major discoveries.  The grades keep going down.  The supply of new gold that is added by mining is only 1.5% of the total above ground stock each year.  Compare that to the monetary base which is probably adding more than 20% each year.

So I think there will be a reconciliation of this disconnect, and it will have something to do with the failing of these financial intermediaries such as the Comex, LBMA, and the banking system.  It is something that is inevitable but I just don’t know when.

The other thing which I think people are just simply not aware of is the fact that we are living in an absolutely delusional market climate.  This is the intention of policymakers, to tighten the screws on private wealth.  We had none other than Larry Summers speak this weekend about transitioning to a cashless society.

This would allow monetary authorities to achieve even lower real interest rates, and quite likely lower nominal rates.  This would force people to spend.  A side effect of this is that everything is going to be digitized.  And if you think we have problems with the NSA now, just wait until your bank account and your wealth are basically all in a digital format for regulators and lawmakers to look at.

I don’t know why people don’t think about this more but it’s definitely coming, and it’s one reason why we are eventually going to launch a bullion reserve vehicle.  This will allow people who care about that sort of thing to have some percentage of their liquidity outside of the grasp of these greedy regulators and overseers of the financial system.”

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