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John Hathaway: Deficit Risks Will Fuel Gold Move Higher

John feels that gold should be getting more of a bid, but investors remain lukewarm. In the near term, he is unsure of where gold is headed. John cautions that investors are going to become increasingly aware of the dangers of deficit spending and inflation which should cause gold to get more of a bid. A small pullback could still happen, but he doubts that there will be a retest of 2015 lows. Long-term he remains very bullish.

It’s straightforward to find mining stocks that trade at 4-5x their EBITDA. If the gold price were to drop the mining stocks would likely not have much downside. The recent gains in the dollar have not been bad for gold as it has begun moving with the dollar index.

He feels the best performance gains will come from exploration companies. There is always excitement from a good drill hole or from resource estimates increasing. The larger companies like Barrick and Newmont are running out of reserves, and these companies will need to acquire some new properties from smaller explorers. He sees a merger and acquisition phase coming.

Streaming and Royalty companies will perform fine, and they have done great over the past few years, however, in percentage terms, they may not do as well as the explorers going forward.

The U.S. fiscal situation is quite dire, and there are excellent reasons to own gold right now. We will likely end up with inflation and a Congress that is less able to act. This mostly means a continuation of existing policies. The problems will probably be related to capital markets and investors may become discouraged and move into gold.

Time Stamp Reference:
00:50 – Sentiment in the gold markets
03:30 – Valuations of mining stocks.
05:00 – Strong dollar not necessarily bad for gold.
06:36 – Recent performance from large mining companies.
08:10 – Good explorers can bring excellence performance
10:30 – Streaming and Royalty performance going forward.
13:25 – Pessimism in some stocks may bring extra gains.
15:05 – U.S. fiscal situation, government in-action, and market risks.

Talking Points From This Week’s Episode:
• Gold investors are currently lukewarm to the sector.
• John remains very bullish.
• Gold has been moving with the dollar index.
• Excellent potential in exploration companies.

John Hathaway, CFA, is Chairman of Tocqueville Management Corporation, the general partner of Tocqueville Management L.P. Mr. Hathaway joined Tocqueville in 1997. He co-manages the Tocqueville Gold Fund (TGLDX). Also, he manages separate accounts with a gold equity mandate including the Falcon Gold Fund, the Falcon Gold UCITS Fund, Tocqueville Gold Amerique (FCP), a sovereign wealth fund, and various separate accounts for family offices and government entities. Before joining Tocqueville, Mr. Hathaway co-founded and managed Hudson Capital Advisors followed by seven years with Oak Hall Advisors as the Chief Investment Officer in 1986. In 1976, he joined the investment advisory firm David J. Greene and Company, where he became a Partner. Mr. Hathaway began his investment career in 1970 as a research analyst with Spencer Trask & Co. Mr. Hathaway graduated from Harvard College in 1963 (B.A.) and the University of Virginia Business School in 1967 (M.B.A). He also holds the CFA designation.

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