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To quote John Hathaway

Submitted by Roanman on Sat, 05/15/2010 - 14:00

The US Mint is suspended its production of 1 oz. gold eagle and gold buffalo coins three times in 2009

 Over the last decade the DJIA is down about 80% against gold.


  The following is from John Hathaway at Tocqueville Asset Management 11/30/2009

Click anywhere below to link up to the entire piece.


“The supply of gold increases at a far slower rate than that of paper money. Each year, the gold mining industry produces around 2500 metric tonnes of the metal.

This quantity adds a puny 1% or 2% to the above ground supply of 163,000 or so metric tonnes.

Unlike economically sensitive commodities, to which it is frequently and incorrectly linked, gold does not get used up.

Therefore, traditional supply and demand analysis does little to explain price movement.

It is better to think of gold as a multi trillion dollar capital market asset.

In theory, all of it  is potentially for sale at any given time.

Price behavior is best explained by macroeconomic considerations and the greater investment climate rather than micro economic considerations such as mine expansions or jewelry consumption.

To speak of a rising gold price is technically incorrect.

What appears to be a rising metal price is an illusion that signifies the declining value of paper currency and, more
important, the wealth that it measures.

Gold per se does not excite the investment world. It has not suddenly changed its stripes.

What has changed is the world around it.

What has come into view is the seemingly real prospect for the dollar and other paper currency to lose future value…

“In our opinion, the investment rationale for gold, in today’s circumstances, is deflation.

The post World War II economic model of economic growth based on secular credit expansion is broken.

We believe the applicable model is a 1930’s style credit deflation.

Asset prices are pressured by deleveraging.

Uncertainty as to collateral values restricts credit despite available liquidity.

The contraction of credit hurts economic activity, causing incomes to fall and asset values to fall further.

A negative shift in expectations rapidly overtakes behavior.

There is little government policy can do about this other than to devalue currency to lessen debt burdens.

The Fed understands this and is acting accordingly.

Keynesian stimulus packages at best mean that government spending replaces lost private sector activity to stabilize the economy.

This is pretty much where things stand at the moment.

It remains to be seen whether massive stimulus can offset the headwinds of a negative credit cycle.

Since there is no way to know how these wild experiments in monetary and fiscal stimulus will turn out, investors are gravitating to gold, knowing that the integrity of the currency is the last thing on the minds of policy makers.

Gold is a wager that these measures will not restore economic health over the longer term and that further currency debasement will be deemed necessary…

“Zero interest rates are designed to encourage a new carry trade.

Free money is intended to inflate asset values in hopes of restarting the credit cycle.

In other words, our ‘leaders’ in Washington will solve the problem of too much debt with more debt.

Decades of credit excesses have brought us to the brink of a credit collapse.

Unfortunately, there is little to suggest introspection. Most expect and assume that government intervention will continue to work miracles.

Things should get really interesting for gold when government actions are seen to be impotent.

“As long as deflationary forces prevail, world governments will remain addicted to currency debasement.

If currencies are successfully debased through inflation, gold will retain its value.

The middle ground between deflation and inflation exists only in the imagination of policy makers and analysts who still believe governments can create wealth.

Gold is a hedge against a world monetary order on its death bed.”

John Hathaway, Tocqueville Asset Management L.P., 11-30-09