What might the headlines be when gold trades at new highs? The list is long and by its very nature speculative. The key undisputable fact is persistent negative real interest rates which is the swamp which motivates investment capital to seek out gold. Negative real interest rates or financial repression means distortion of markets in such a way as to create the potential for financial accidents. The overhang of bad baggage from ten years of predominantly negative real interest rates is in our opinion weightier than anything in history. The policy challenges facing the Volcker Fed and the Reagan administration that ultimately capped the previous bull market in gold seem mild by comparison to those of today. We believe that gold remains under owned and misunderstood notwithstanding a thirteen year bull market. It is considered a fringe strategy to most, a little bit exotic and slightly risqué to the mainstream investor. While policy makers attempt to buy time by inventing solutions that are incomprehensible to most, the dream of mainstream investors for robust growth amidst stable economic conditions remains alive. Faith in half-baked policy improvisations that are nothing more than repackaging bad debt in the envelope
of sovereign credit, along with hope that ever increasing quantities of sovereign debt will generate growth is, in our opinion, delusional. It is a smoke screen that obscures reality and will most likely result in further misdirection of capital. When adverse outcomes become obvious, gold will seem pricey. In the current confusion of misplaced faith, it seems to us downright
reasonable.

David Fuller's view One would expect John Hathaway to be bullish of gold, otherwise, why manage the fund? Nevertheless, I find the logic of this paragraph irrefutable.

Veteran subscribers will recall that the Volcker Fed capped the previous bull market in the 1970s (the target was inflation, of which gold was only a symptom) with high interest rates. I maintain that gold's current secular bull market will also be ended by high interest rates at some future date. Meanwhile, today's exceptionally low rates should be a tailwind contributing to the next advance.

This historic chart of gold adjusted for inflation shows that it has yet to surpass its 1980 peak. I would not be surprised if it does exceed that level within the next eighteen months. However, before fuelling the next momentum move, many investors will wait for evidence that gold bullion in USD (weekly & daily) has sustained an upside breakout from its current range. The narrowing, triangular nature of this pattern, caused by a standoff between supply and demand, suggests that a breakout is likely within the next few weeks. However, because gold has been in a corrective phase, a number of observers have been looking for a downside breakout. That cannot be ruled out, especially in this era of HFT, but I think it would be short-lived and soon followed by a much bigger move to the upside.