“More and More Capital is Going to Move into Gold”

The recent strength in precious metals continued on Thursday, as gold reached a one-month high.  COMEX gold futures for February climbed on Thursday by $7.60, or 0.5%, to $1,690.80 per ounce – their highest closing level since December 17th.

Silver futures advanced as well, with the COMEX March contract settling with a gain of $0.27, or 0.9%, at $31.81 per ounce.

With today’s rally in gold prices, the yellow metal is now higher by 1.7% this week and on pace for its best such stretch since early November.  Earlier this week, John Hathaway –  manager of the Tocqueville Gold Fund and one of the most prominent long-time gold bulls – stated in an interview with King World News that “To me the imperative to hold gold is stronger than ever.”

“The current effective interest rate on the $16 trillion of US debt outstanding is less than 2%,” Hathaway added.  “That’s partly because the Fed remits interest back to the Treasury on the bonds it owns, and last year that number was almost $90 billion.”

He went on to say that “No matter what they say in terms of the Fed not buying Treasuries somewhere down the road, when we theoretically have growth, they are still going to have to buy them because there’s just no market.  Certainly at this rate of interest there is no natural market for Treasury debt…So I think that the basis for gold to trade substantially higher lies in the unknown consequences of the position of the Federal Reserve, and the necessity of the Federal Reserve continuing to buy government debt, the issuance of which is going to continue to rise.”

As for the looming U.S. debt ceiling, Hathaway contended that “I honestly don’t think, if you look at what’s been going on and what’s likely to happen, that there is going to be any remote hint of fiscal discipline.  To me, everything points towards a continuing, unresolved fiscal crisis.  This will require the government, assuming they can keep everything under control, to maintain negative interest rates.”

“Negative real interest rates incentivize real capital to move into gold, and that’s what’s been going on,” he concluded.  “If my analysis is on the mark, those negative interest rates are going to continue into the future and more and more capital is going to move into gold.  I think that’s going to result in gold trading substantially higher in 2013 and the years beyond.”