John Hathaway on central banks replacing U.S. dollars with gold

At this point, one can only speculate on the reasons for the behavior of gold bullion.  There are many interrelated forces at work to explain the slump in the U.S. dollar (USD) relative to the gold price.  However, in our opinion, the most obvious is a general loss of trust in the USD as a store of value and U.S. Treasury bonds as a safe asset. 

Widespread evidence includes record purchases of gold by central banks replacing U.S. dollars and other paper currencies for bullion at a record level in 2023 (1,037 tonnes).  For central banks, unlike mainstream investors, the math on the U.S. fiscal situation dictates immediate action.  The $168 billion increase in U.S. government debt over the last 20 days equals the entire U.S. deficit in 2002, as noted by Fred Hickey in the 4/02/2024 High-Tech Strategist.  By year-end, interest on the national debt is likely to be the largest single U.S. government outlay, according to Bank of America chief market strategist Michael Hartnett (FFFT, The Forest for the Trees, 4/06/2024).  Non-U.S. investors have been voting with their feet, as the steady decline in the USD as a share of global foreign exchange reserves illustrates (see Figure 5).

~ John Hathaway, "What Does the Gold Price Breakout Mean?," Sprott Gold Report, April 10, 2024

What

John Hathaway on the recent gold breakout

The breakout in gold prices since February has been largely ignored by mainstream investors.  Over the past few weeks, gold has moved swiftly from a year-to-date low of $1,993 per ounce on February 13 to $2,230 at the end of Q1 to $2,350 at this writing — a nearly 18% move from its February low.  Continued outflows from gold-backed ETFs attest to the disinterest.  For the 12 months ending 3/31/2024, holdings of global gold-backed ETFs declined nearly 12%.  In addition, 75% of investment advisors have less than 1% exposure to gold, the highest percentage of aversion since 2019, as shown in Figure 1.  

Gold bullion's breakout is significant in that it represents the positive resolution of a three-year standoff, consolidation, or tug of war between bulls and bears.

~ John Hathaway, "What Does the Gold Price Breakout Mean?," Sprott Gold Report, April 10, 2024

Johh Hathaway on the great monetary experiment

The consituency for sound money is all but vanished. 

~ Johh Hathaway, co-portfolio manager, Sprott Gold Equity Fund

Groucho Marx on principles

These are my principles. If you don’t like them I have others.

~ Groucho Marx

(Quoted by John Hathaway at the 56:45 mark on The Grant Williams Podcast, October 28, 2020.)

John Hathaway on QE5

There’s no turning back.  Each iteration of QE has been bigger and the current one – I guess it’s QE5 – it’s $120 billion a month, $4 trillion a year of balance sheet expansion.  And if anyone thinks there isn’t going to be another QE they’re absolutely smoking pot… as we do here in Colorado. 

~ John Hathaway, "Super Terrific Happy Hour Ep. 7 - John Hathaway: Being A Doyen Is A Good Thing, Right?," The Grant Williams Podcast, October 28, 2020

Bill Fleckenstein on gold being underowned in investment portfolios

According to a story in Commodity Online, gold comprised just 5% of world financial assets in 2008; whereas in 1982 gold comprised 22% of world financial assets. As I've noted before, when I first got into the investment business 30 years ago, it was considered prudent to have at least 5-10% of one's assets in gold. Of course, that asset allocation doesn't take into consideration the general disdain that central banks now have for the purchasing power of any of their currencies, which ought to exacerbate today's demand for gold. Looked at differently, according to the World Gold Council (and John Hathaway), if global pension funds decided to increase their exposure by about 1.2%, it would require more than 44,000 metric tons, or roughly 27% of all the gold that's ever been mined. As I noted when the FT changed its tune about gold (May 09: "As Good As Gold"), I think the big story is going to be the establishment-types who -- to potentially hew to the fashionable status of allotting 5-10% of one's financial assets in gold-- ultimately chase the price much higher as they build their positions. And, if the Chinese central bank decides to do that, they have a long ways to go from their base of just under 2%. 

~ Bill Fleckenstein