We're continuing with our series of video
conversations, as we believe they will be most useful to you while they are
fresh. But fear not: if Doug has a "guru moment" or experiences an urgent
need to comment on something in the news, we'll step in with his thoughts.
Meanwhile, John Hathaway's comments are particularly relevant and reassuring, given the fluctuation we're seeing in gold
Thanks for reading/viewing, and more soon,
[John Hathaway revealed more valuable insights about
the precious-metals market at the Casey Research Recovery Realty Check
Summit. Joining him were Doug Casey, James Rickards,
John Mauldin, and 27 other financial experts. You can hear all of their
presentations – which include timely stock picks and asset-protection
strategies – on the Summit Audio Collection.]
Interviewed by Louis James, Editor, International Speculator
Louis James: Ladies and gentleman, thanks for tuning in. We're at the Casey Research Recovery
Reality Check Summit. We're talking with John Hathaway, one of the more
successful fund investors – institutional investors – in our
precious metals field near and dear to my heart. John, can you give us a
quick version of what you talked about here, for those who didn't make it to
John Hathaway: Sure, yes. I think we're at the end of a correction
that resulted from the peak last summer. It was overcooked, kind of
hyperventilated hysteria over the debt-ceiling talks, the rating downgrade of
the US sovereign debt, and I think basically the stocks and the metal had
been working off that boiled down to what we now have is a simmer. I think we
are at a position where there's not a lot of downside, and I would not be
surprised by revisiting the previous highs of $1,900 and maybe even new highs
over $2,000 this year.
What will do that is basically – so much of the
narrative has been quantitative easing. When Bernanke announced on the 29th
of February that they were done with quantitative easing (and if you believe
that I've got a bridge to sell you, but for the time being let's assume that
there won't be any), I was very impressed that gold did not go to a new low.
It printed somewhere below $1,600 at the end of the year, made a
couple-of-day swoon, but it didn't go to a new low. And then when the Fed
minutes came out it also did not go to a new low, it kind of reiterated what
Bernanke said. So the narrative may be changing. I'm not ruling out
quantitative easing as a possibility, but there are things out there that
gold might be looking at that the CNBC mentality hasn't figured out.
Remember that gold rose for many years before we even
heard of quantitative easing; it was in a steady uptrend. So what could those
things be? What would take gold – what would be the new headlines that
might take gold to higher highs? To me, the biggest thing is that the Federal
Reserve has purchased something like 61% of all new Treasury debt in the last
year; and if they aren't going to continue that, then what's going to happen
John: The Chinese
– who had been big supporters because they were rigging their currency
– have not been generating foreign exchange to anything like the extent
they were, so their participation rate in Treasury auctions has gone way
down. If you look up the TIC numbers, foreign buying of Treasuries has
dropped precipitously, so you have the two biggest pillars of support for
keeping rates low in question here, and let's see what happens on June 30th.
If you don't have a political buyer, either the Chinese and foreign buyers
who are manipulating currency, and the Fed because they said they aren't
going to do it, what are rates going to do?
If you are going to get a risk-free return
inflation-adjusted today that's not politically motivated, it's got to be somewhere
around 4-5% on the short end of the curve. Every hundred basis points adds a
huge amount to the budget deficit, so to me we're in a real trap here, where
it's going to be a game of chicken as to whether the Fed can really live up
to what Bernanke said on the 29th.
Louis: Isn't that
really the bottom line? They can't allow that interest rate to rise with the
debt outstanding –
John: It seems
very difficult. The recovery, the alleged recovery that we had, is
very… I'll grant that things are better than they were a year ago or
two years ago, but you'd have to call it feeble at best and maybe not
sustainable. That's one thing that I think could affect the gold market.
The second thing, and I think
it's very important too, is that inflation is rising. Even though the economy
is soft, the number I look at – and I know we're going to have John Williams speak at
lunch, and we know he has a very good take on it – is the MIT Inflation
Index, because that's real-time pricing of billions of products. You can get
to that website just by googling "MIT Inflation Project";
and that does not include services. Most of the services I take are inflating
at more than 5%; they are closer to 10%. But goods that could be measured in
real time are rising at 5%, so that's also going to be a factor. That means
if rates stay where they are, the Feds are just going to be that much more
behind the curve.
So those are two things; and the third thing is that
there's $1.5 trillion of liquidity in the system that should the recovery
– and I'm not a macro forecaster, but let's say the recovery does
sustain itself – you've got $1.5 trillion of free reserves that could
just turn into money supply. Then you really would have a potentially
hyperinflationary scenario, and the Fed would be completely powerless to do
anything about it. So I think that's bullish for gold – gold is not
backward looking, it basically looks forward. I can go on and on. You've got
the European unresolved sovereign debt crisis in Europe.
Louis: Let me jump
in with a question about this, then. You've stood out really from the crowd
in that most people agree on the general prognosis for gold. Most people are
sort of near-term bearish, you know, the ones –
John: It makes me
But, you know, once a bear sentiment sets in, it seems to almost have its own
Louis: You're the
only who's saying "I think we're near the bottom." Most people are
saying, "Sell in May and go away" –
John: Yes, I heard
a couple of things from this session that just made me want to jump up and
Louis: I understand
the contrarian reason for that, but can you tell our audience a couple of
reasons why you think we might be near the bottom or why you're ready to buy
now and not waiting to see how this summer turns out?
John: Sure. Well,
first of all, I'm not a trader. I mean, I'm long, and last summer I thought,
"Gee, this is really a little spooky, we're not at a sustainable
level," but there wasn't a whole lot I could do about it. And here we
are and we have some cash, we have some inflows, so we are able to put money
to work. And what is it that makes me think we're there? Sentiment numbers
are extremely negative, historically, when they've gotten to these levels. By
the way, I put out a quarterly newsletter now that has a lot of this data,
which can be found on our website.
Louis: Go ahead and
give us the website.
John: It's the Tocqueville Asset
Management website, and it should be fairly easy to find. So sentiment is
at levels that have been associated with big rallies. Traders' commitments,
net longs, net spec longs are way, way down there. I look at that a lot just
as a way to see where the market is positioned. The guys who can create some
volatility are not there, and so if gold starts
moving, they won't want to miss it, and so they'll come in. And then, we've
looked at some technical stuff. I'm not a technician but most of what I see
from a technical perspective is extremely constructive. So I put those things
Sentiment is rock bottom. COMEX traders' commitments
are very, very constructive, and technical things that we look at are very
constructive. So I would say all of those things, plus hearing these guys say
that they are not going to step in – that's more anecdotal, but that to
me is just very, very positive. So I – frankly I don't stake my
reputation the way that Dennis Gartman does on
making trading calls, but just as an experienced observer of this market for
some number of years now, I think we're ready to make a move higher.
Louis: Okay, well,
thank you very much. Word to the wise.
John: Thank you.