Hathaway:  “I think the story of the day is the disconnect between physical gold and paper.  I just saw a note this morning about the most current drop in COMEX warehouse inventories.  Brinks also reported this week that their inventories were down 55%....

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“We also have what’s been happening with the gold lease rates.  This is just another indication of how hard physical gold is to come by.  Bernanke also basically made a U-turn on QE by essentially saying we are going to be in this easy money mode for a long, long time.  He definitely backed away from ending QE in mid-2014.

I think the shorts had been ganging up on gold with the view that there would be some sort of exit, and now it’s nowhere in sight.  So now some of the shorts are running for cover.  But if I’m at the Fed, I am looking at a huge mess.  We also know that Bernanke is on his way out.

I have a to-do list for the next chairman of the Fed.  One would be to open a direct connection so the Treasury doesn’t have to issue bonds.  The Fed just gives the Treasury money to fund whatever they need to fund.  The other thing they may do is force tax-deferred retirement accounts to own 20% in a Treasury security that has an interest rate ceiling of say 2%.  That’s how they are going to try to get out of QE, or the alternative is we are going to have incredible inflation.”

Hathaway also added:  “This sentiment is as bad as I remember going all the way back to when we started the gold fund in 1998.  Gold has become a joke.  I love these aggressively negative strategy type letters that I keep seeing.  Everybody is trying to top the next guy on how low gold will go.  It’s the opposite of what we saw when gold was pushing above $1,900.

So sentiment is ripe for a complete reversal on gold, and a very sharp one.  We know the market is structured in a way that is very vulnerable to a short squeeze, which I think has already started to take place, but we are still in the very early stages of it.  We have had a lot of false starts in the gold market, but this one sure looks like a massive upside reversal will soon be upon us.”

Hathaway also spoke about mining shares:  “Analysts go on and on about the negatives associated with the mining industry.  There is a laundry list of things they present.  I think that’s all well and good, but a different gold price environment will bring these shares back to life in a huge way.

The big fundamental that none of the sell-side analysts ever talk about is the gold price.  Right now the gold mining business is not a good business with gold trading in the $1,200s.  But if the gold price goes north of $2,000, which I think is very possible, it’s going to be a great business and everybody is going to want to own them at that point.

The entities that are short gold here, the hedge funds, they are going to be long gold stocks at the next medium-term top in this long-term secular bull market in gold, and that’s going to be with gold printing well above $2,000.  At that point gold mining will be a great business.  So I think we are setup for that kind of reversal of sentiment.  And at some juncture we will see sentiment wildly bullish not only for gold and silver, but also for gold and silver mining shares.”

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Eric King

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