Thursday, January 16, 2014

Hathaway - Gold Price To Super-Spike As Physical Flees West

"...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."


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