Tuesday, March 13, 2012

John Hathaway - 9 Key Points for the Gold & Silver Markets

1.The recent sharp decline appears to have been another test of the December low of $1532/oz intraday. Gold fell to $1675 on March 9th from $1788 including a drop of $72 on February 29th. So far, the downside was contained near the 200 day moving average. From a purely technical standpoint, the uptrend in gold seems intact.

2. Still, we may see another test to shake out weak hands in the next month or so.

3. Gold shares remain cheap relative to the gold price, with robust earnings reports in the Q4 2011, and strong earnings are likely to repeat in the 1st quarter of 2012.

4. Bernanke’s comment on February 29th, that future QE was unlikely, was the spark for the recent sharp decline in gold and other precious metals. Additional pressure has come from the flow of favorable reports on the US economy.

5. The fact that gold has survived the negative news flow from the monetary and economic front is encouraging. If gold can withstand the apparently changing narrative that had underpinned a bullish stance on gold, it will be a sign of enormous strength.

6. What is it that conventional wisdom has not already discounted that could propel gold much higher? We can only guess at this stage, but it is far more preferable for the precious metals complex to exhibit strength for no apparent reason, as opposed to when everybody thinks the reasons are obvious (which had been the case until this most recent pullback and the apparent change in the news flow.)

7. We believe that the precious metals story is far from over, but it may be changing from the point of view of the simple minded commentary one is exposed to in most of the financial media.

8. The future rationale for investing in gold will most likely be found in the difficulty that central banks encounter in trying to unwind unprecedented monetary largesse. This could take the form of a disastrous market for government securities or an extended period of inflation which further undermines confidence in paper currency. It could come from some sort of economic difficulty which raises the prospect for further quantitative easing in the Western democracies.

9. In any event, we believe it is far too soon to sound the “all clear” signal with respect to abandoning the protection against monetary debasement that gold provides.

- John Hathaway via a recent King World News interview, read the full interview here: