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Gold Price Outlook Bright, Says Hathaway

Release Date: 
Thursday, December 30, 2010

GOLD PRICE NEWS - The gold price traded near unchanged at $1,410 per ounce on low volume Thursday morning. The price of gold has gained $29.50 this week 1.5% of its $1,431 all-time high. Silver moved higher, rising to $30.65 per ounce - within a fraction of its $30.75 thirty-year high. The rally in the price of gold and silver came as the U.S. Dollar Index slid 0.17 to 79.59, led by weakness versus the Canadian dollar. The loonie rose above parity against the U.S. dollar as the global appetite for resources continues to surge.

The gold price has rallied on the back of waning confidence in virtually all fiat currencies, notably the U.S. dollar. Commenting on the U.S. dollar's prospects, long-time gold bull John Hathaway - in his 2010 Year-End Investor Letter - reiterated his bearish outlook for not only the greenback, but most of the developed world's paper currencies. Hathaway, portfolio manager of the Tocqueville Gold Fund, went on to identify two primary catalysts for the gold price's advance in 2010 - the European sovereign debt crisis and the Federal Reserve's second round of quantitative easing (QE2).

Concerning the financial troubles in Europe, Hathaway wrote that "permanent resolution of the credit woes afflicting the weaker European economies (PIIGS-Portugal, Italy, Ireland, Greece, and Spain) will remain elusive. Bailouts and rescues resolve nothing and have only bought time while potentially fueling inflation by further undermining confidence in the euro."

As for the Fed and QE2, Hathaway noted that Chairman Bernanke's rationale for the $600 billion asset purchase plan was "unequivocally…to create inflation." This mindset was "quite disturbing to foreign holders of U.S. dollars," and helped propel the gold price to another new all-time high.

Hathaway subsequently refuted the idea of a gold price bubble, noting that many market pundits feel the ascent in the price of gold "has been overdone" and is "too crowded." The Tocqueville Gold manager contested these assertions, stating that "the simple fact remains that central banks of the Western democracies appear on course to debase paper currencies."

With regard to gold stocks, Hathaway contended that the sector remains "cheap" relative to the price of gold. He pointed to the ratio of the Philadelphia Gold & Silver Index (XAU) to the gold price, which currently stands at 16%, far below the historical norm of 20-25%. Based on the ability of gold companies to generate substantial earnings and cash flow at current gold prices, Hathaway predicted that the sector will continue to produce "acceptable investment returns even if the price of gold were to hypothetically remain range bound for a period of a few years."

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This article is independently provided by and does not represent the views or opinions of Goldline International, Inc. Although the information in this article has been obtained from sources believed to be reliable, Goldline does not guar­antee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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