Hathaway:  “To me the biggest story right now is the disconnect between paper gold and physical gold.  I see a lot of good commentary covering this on King World News.  I just don’t know how this plays out, but it seems to me that if the banks were involved in manipulating electricity, oil, and LIBOR, why would gold be exempt from such manipulation?

That’s why I’m so interested in the fact that COMEX warehouse stocks have dropped to extremely low levels....

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“We also see that the Bank of England may have disposed of 1,300 tons during the break in the gold price.  So there are many, many clues as to a big short position in gold, and obviously intervention by the banks and hedge funds running with (central banks) on that trade. 

But part of the reason why gold will trade higher is this mismatch between the shorts, gold that has been leased, and physical demand, which we know continues to be very strong.  I’m just waiting for the next macro event that will make everybody want to own gold again, instead of being comfortable on the short side.

Another story that I think will be very important over the next couple of years is the substantial winding down of gold production by the mining industry.  This is simply because the mining companies have been told by their investors not to commit huge amounts of capital to new projects. 

This is an industry which has to regenerate itself every 10 years.  If that pipeline starts to wind down, and those projects under construction start to shrink, you are going to see global mining production begin to seriously contract.  This really is a supply/demand story and I think it will be extremely constructive in terms of supporting a higher gold price in the future.”

Hathaway added this regarding silver:  “Right now silver is the handmaiden of gold.  I don’t think it goes anywhere without gold marching higher.  When gold gets going in either direction, silver is more volatile than gold, but the reality is that right now it needs to take its cue from gold.

We are in a backing and filling mode where the metals are base-building from this recent price smash.  But we are close to entering a seasonally strong pattern.  So going into the fall there are seasonal factors that should help gold.  I believe the shorts are close, or are already to the point where they have run out of ammunition.  Everybody is focused right now on whether the Fed is going to taper QE, but I’m not sure that’s going to be the next story that will move gold. 

I think there are many other things that can enter the narrative as to why people would want to own more physical gold:  One of them could just be inflation.  Another could be rising interest rates which is certainly in the cards.  This would become problematic not only for the economy, but also for the financial markets as well.  The bottom line is that all of this will provide substantial underpinning for higher gold prices over time.”

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Eric King

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