Zeev's Turnips Patch-No Politics (ZEEV)

[basserdan]

*** $375 gold still cheap – Hathaway ***

Imo, JH is one of the brightest lights on the PM highway.


$375 gold still cheap – Hathaway

By: Stewart Bailey
2003/09/09 Tue 09:50 ZE2

NEW YORK -- While the cynics wait for gold to come crashing down once record long positions on Comex are liquidated, at least one fund manager is sticking to his prediction that gold’s current rally is only in its formative stages.

“It’s very early days yet,” says John Hathaway, manager of the $500 million Tocqueville Gold Fund. If gold fund inflows are anything to go by, he might just be right – alternatively, a growing number of retail investors and institutions are getting it wrong, again.

Hathaway says fund flows are encouraging for Tocqueville, with retail investors leading the early charge, while all the while enquiries from large institutions are gaining momentum.

Hathaway is aware of the growing unease among gold bulls, created by the rapidly increasing speculative overhang of long positions on Comex. His bullish outlook for gold is similarly unaltered by the improving fortunes of US equity markets this year.

“It’s a suckers’ rally,” says Hathaway. “Japan had four of them during the nineties and at the end of the decade, the Nikkei Dow was 80 percent off its peak.”

The view is underpinned by his forecast of a four digit gold price inside of 10 years. The rise, he says, will come from a number of bearish macroeconomic fundamentals for the US and the broader global economy in general: the Chinese currency remains undervalued, allowing the world’s fastest growing major economy to export deflation to the US; interest rates are mired at record lows, discouraging new hedging; and mushrooming US deficits all bode well for gold.

The view is hardly new. It chimes with Newmont president Pierre Lassonde’s view and Gold Fields chief executive, Ian Cockerill, makes prodigious use of Hathaway’s research in his presentations on the gold price.

The background fundamentals for gold itself also look good he says, not least of all because of the emergence of gold backed securities. The shares, each of which are backed by physical gold, are already trading on the Australian Stock Exchange and are slated to debut in the US, the UK and South Africa later this year. The concept was thought up by the World Gold Council in an effort to translate speculative interest in gold to hard physical demand for metal. Hathaway already owns the Australian version, called Gold Bullion, and will buy the others when they finally list.

While the uptake of the gold backed equity has been modest, Hathaway says the new securities will bring an unprecedented flow of new money to the gold market by allowing investors to switch seamlessly from equities into gold and back again. Buying gold is currently “retarded and antiquated”, he says. The new securities change that at a stroke.

“They’re going to draw money, physical money, into the gold market in a way that nobody can imagine,” says Hathaway.

In the meantime, though, Hathaway says a $375/oz gold price is hardly overheated. He says the current price is at the lower end of the trading range it was in between 1985 to 1996. “Where we’re at is no big deal…we’re a long way from complete mania here,” says Hathaway.

Hathaway says investors should have between 5 percent and 10 percent of their portfolios in gold. Of his funds currently under management, 15 percent to 18 percent are invested in South African gold stocks. Hathaway is sanguine about the prospects for Johannesburg’s gold board, despite niggling legislative concerns and a stubbornly strong rand, which he is confident will fall back before too long.

“I just can’t see why the rand should be a strong currency,” he says. To a man, South African mining executives presenting at the conference all hope Hathaway is right.

North American gold shares make up roughly 30 percent of Hathaway’s portfolio and physical bullion about 6 percent.

http://www.mips1.net/mgni3.nsf/Current/80256D96003CA7A942256D9C002BB448?OpenDocument