Time For Some Pain For Gold Bears And Dollar Bulls – John Hathaway
(Kitco News) - Gold bears and dollar bulls should “run for the hills” while they still can, warns portfolio manager of a billion dollar gold.
In a commentary published last week, senior portfolio manager at Tocqueville Asset Management, John Hathaway said that he sees signs that the gold market’s extreme conditions are on the verge of reversing and higher prices are “imminent.”
“As painful as it has been for long-term investors in precious metals, hang in there! In our opinion, the extreme condition of market structure and investor sentiment suggests that, at the very least, a trading low is at hand, while broad macro- and gold-specific microeconomic fundamentals suggest a resumption of the uptrend in metal prices from the December 2015 low,” he said in his report.
Since Hathaway’s report was published, gold prices have managed to push above the critical psychological level at $1,200 an ounce. The yellow metal has managed to hold on to its recent gains as December futures settled Monday’s session at $1,216 an ounce, up 0.22% on the day, hovering near a two-week high.
While the gold market has suffered because of surging momentum in U.S. equity markets and the U.S. dollar, Hathaway argued that the economy is not as strong as investors believe it to be. He added that one significant threat is the U.S. dollar.
He noted that a stronger U.S. dollar makes imports more attractive, which ultimately undermines domestic activity. At the same time, the rally in the greenback is hurting emerging market economies, which could create a global credit crisis.
“The global economy and financial markets are interconnected. The idea that the US is an island of strength that can withstand recession in the rest of the world sounds to us like a battle cry from the 1930s,” he said.
While the dominoes on the world stage start to wobble, Hathaway noted that U.S. investors have their own problems to worry about, in particular growing deficits.
“The US fiscal situation is out of control. Trillion-dollar deficits will become commonplace, meaning annual increases in public debt of 5% or more. Economic growth seems unlikely to outpace this rate of increase without significant inflation, dollar weakness, and a rise in interest rates that will undermine financial-asset values,” he said.
“The current bout of extreme gold weakness coincides with resurgence in complacency…” he said. “The time to buy insurance is when risk perceptions are the lowest making insurance cheap relative to the risk. We believe that now is such a time.”