By John Hathaway, Senior Managing Director, Tocqueville Asset Management

January 15 (King World News) - Gold Price To Super-Spike As Physical Flees West

Despite the painful decline in gold and gold shares that persisted throughout the entire year, we believe that the fundamental case for both remains strong.  It seems to us that the correction has left the entire sector sold out and friendless.  As contrarians, our experience has been that attractive investment returns arise out of such circumstances.  We therefore encourage investors to maintain their commitment and wherever possible to add to positions.

At the current gold price, construction of new mines in most cases does not make sense.  Therefore, future mine supply is jeopardized without a substantial and sustained rise in the gold price....

Continue reading the John Hathaway piece below...  


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Miners have reduced costs sharply and are therefore highly leveraged even to a modest rise in gold prices from here.  Managements seem more likely than ever to remain tight fisted on new capital commitments.  Therefore, we expect cash to build on balance sheets and investor pressure to raise dividends.

We also expect to see a trickle of accretive acquisitions by a small number of management groups who view the bombed out status of the share market opportunistically.  In those instances in which we have confidence in management’s investment acumen, we would be supportive of such steps.

The bullion market has been pressured all year by an artificial supply of paper gold with little or no connection to the underlying physical.  We wrote about this more extensively in our website article "Let's Get Physical."

We believe that the resolution of the disconnect between paper and physical gold will be a dramatic upside repricing of the real thing.  Most important is the steady migration of physical gold bars held in Western vaults to China and other parts of Asia, where they seem unlikely to be returned, other than for exorbitant ransom.

The timing of a resolution so potentially cataclysmic is elusive.  It would be like counting the snowflakes necessary to trigger an avalanche.  The buildup of systemic risk is there for anyone to see, but to the investment consensus, it is preferable, and perhaps more profitable in the short run, to ignore.  A commitment to precious metals and related mining shares is an investment in the almost certain failure of the PhD-standard in central banking, as stated so eloquently by Jim Grant.

Based on our perception of markets, it seems to us that the downside risk is limited.  Based on our perception of fundamentals, it seems to us that the upside potential is substantial.

King World News note:  Below are 5 fantastic charts from John Hathaway which take a look at the big picture for gold and the mining shares:

King World News note:  It is quite astonishing that you can see in the chart above (figure 52) the adjusted market cap per ounce of gold resource divided by the gold price is back to levels last seen in the 1990 time frame, which was directly in the middle of the roughly 20 year bear market in the price of gold.  Gold is simply experiencing a mid-cycle correction in a secular bull market, and yet the devastation in the mining shares has reached historic extremes on the downside.  This is why people like John Hathaway, John Embry, Egon von Greyerz, Rick Rule and Eric Sprott talk about the unbelievable opportunity this market represents for patient, long-term investors.

Best regards,

John Hathaway

Portfolio Manager and Senior Managing Director

© Tocqueville Asset Management L.P.

January 15, 2014

This article reflects the views of the author as of the date or dates cited and may change at any time. The information should not be construed as investment advice. No representation is made concerning the accuracy of cited data, nor is there any guarantee that any projection, forecast or opinion will be realized.

References to stocks, securities or investments should not be considered recommendations to buy or sell. Past performance is not a guide to future performance. Securities that are referenced may be held in portfolios managed by Tocqueville or by principals, employees and associates of Tocqueville, and such references should not be deemed as an understanding of any future position, buying or selling, that may be taken by Tocqueville. We will periodically reprint charts or quote extensively from articles published by other sources. When we do, we will provide appropriate source information. The quotes and material that we reproduce are selected because, in our view, they provide an interesting, provocative or enlightening perspective on current events. Their reproduction in no way implies that we endorse any part of the material or investment recommendations published on those sites.

© 2014 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.

IMPORTANT - KWN will be releasing interviews all day today.

The audio interviews with Rob Arnott, William Kaye, David Stockman, Rick Rule, John Mauldin, Bill Fleckenstein, Dr. Stephen Leeb, Egon von Greyerz, Art Cashin, James Turk, Dr. Paul Craig Roberts, Dr. Marc Faber and Eric Sprott are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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© 2014 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.

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