Hathaway:  “We’ve had a great run in gold and the mining stocks.  My guess is that near term we need a pause.  I am not as focused on Ukraine or the Crimea because to me they are just part of the bigger system risk....

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“I am focused the disparity between paper and physical gold.  I think these investigations by the German financial regulatory agency, BaFin, and the Financial Services Authority (FSA) in England will expose why gold behaves the way it does.

One has to pay attention to the weak economic performance.  There is a decent chance that the economy will continue to be soft and will expose the likelihood that the Fed will reverse thrust on tapering and ramp it up once again.  I don’t think that is priced in the market at all but I wouldn’t rule it out.

If you look at the economic releases, they are very weak.  The Wall Street Journal focused today on the weak job creation.  If you look at the number of jobs that haven’t been created based on hours worked, we’ve had a net loss of jobs over the last 12 months.”

Eric King:  “China is beginning to show significant cracks in its banking system.  What about China?”

Hathaway:  “If you look at what China represents, it’s more systemic risk.  Their banking system is rotten to the core.  The Chinese know this and they are trying to do something about it.  There has been an enormous amount of credit creation in China over the last decade, so there are a lot of bad assets.  Trying to undo this banking problem, or even rein it in, can have a lot of unforeseen consequences, which would include a major blow to the global economy.

I would also like to point out that during this period of geopolitical tension, historically the dollar has been a strong currency.  But lately we have actually seen the dollar weakening, even in the face of a crisis in Ukraine.  That suggests a real shift in terms of the world’s perception of the dollar as a safe haven.

So looking at things that could take us beyond the current headlines is the displacement of the dollar as the world’s reserve currency.  The behavior of the U.S. Dollar Index is quite illuminating to me, because this is a period when you should see a reflex move into the dollar and away from other currencies, but we are seeing just the opposite here.”

Eric King: “What are the implications of a world without the U.S. dollar as the reserve currency?”

Hathaway:  “The question is:  Where do people go?  Do they go to the euro?  Do they go to the yen?  What is there to go to?  The answer is: none of the above. The only thing I can think of is a four-letter word that isn’t even on people’s investment radars and that’s gold.  So the implication is a dramatic repricing of gold to the upside, and this will shock investors around the world when it finally takes place.”

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