Gold, Silver, The Fed & What To Expect Next

Hathaway:  “As far as gold goes, it looks to me like we have made an important low.  A couple of people I respect have called it, McClellan would be one of them.  I don’t know if that means we rocket higher, but it seems to me we have seen the worst….

McClellan is basically a neutral market observer, and they are seeing very constructive signs from a purely technical point of view.  As far as the shares go, they have to take their cue from gold.

I think that gold has to lead higher, and then I think the shares will respond.  Most of the commentary I see from the ‘sell-side’ is kind of like closing the barn door after the horses have run out.  They are basically doing these very Draconian scenarios with gold not moving above $1,200 — what companies survive, which companies don’t, that kind of thing.  So there is very little discussion about which companies would be really well-positioned in a higher gold price environment.

When I look at the economy right now, it’s very weak.  I see poor housing starts and retail sales.  Corporate guidance has also been very lackluster.  I thought the UPS number was very interesting in the sense that they are seeing lower volumes, particularly from the manufacturing sector.  So the whole pattern to me reflects a very soft economy.

We are also starting to see inflation numbers that are surprising on the upside.  My guess is that the economy continues in this stall mode, inflation does creep higher, and that becomes very problematic for the Fed and also for the valuation of the stock markets.

It seems to me that stocks are trading on a hope and a prayer that this recovery continues and doesn’t fade, and that interest rates get out of hand.  So it seems to me that all of these things are in play, and gold will do much better in the second half of this year.

I think that with continued QE we will see a breakout of inflation to levels that will be very disruptive to both bonds and equities.  So there are some very hopeful signs for gold and the shares, and all of this talk about the Fed is almost nauseating.

Bernanke doesn’t really say anything new, ‘They may taper, they may not taper.  It’s data dependent.’  I feel strongly that they would love to get out of this box they have pointed themselves into, but I’m not sure that they can.  I don’t think the political risk will be very easy, and I think any attempts by the Fed to slow the rate of purchases, and ultimately end the bond purchasing program, will not end well.”

Hathaway: “I think what’s going to happen at this level of prices for silver and gold is you are going to see capital programs pushed out.  You will also see continued mine shutdowns.

AngloGold hit the tape today saying that they would sell a couple of assets, one of them in Namabia.  So the industry is really tightening its belt, which is really going to be good for the sector and good for the prices of gold and silver as well.  The reality if that all of this is going to be extremely constructive in terms of the outlook for the mining shares.