How much higher can gold rise? Quite a lot, believes John Hathaway, portfolio manager of Tocqueville Gold Fund. Personal-finance writer Lewis Braham recently caught up with Hathaway at his New York office.
Where do you see gold heading?
More than $400 an ounce in the next year and near $1,000 in the next 5 to 10 years. Right now, it trades above $380. From the mid-1980s to the mid-1990s, gold traded between $340 and $500, so $400 gold is not a big deal.
What's driving the rally?
Supply and demand. Gold below $400 an ounce does not justify new investment to maintain production at current levels. The largest mining companies are not replacing even half the gold they sell every year.
What about on an economic level?
The macroeconomic climate is extremely favorable. Gold rises when inflation goes up and the value of paper currencies goes down. The U.S. government is doing everything it can to reflate the economy. It has cut interest rates to the bone and increased its money supply. With rates at historic lows, foreigners, who own 46% of the Treasury bond market, have less interest in owning Treasuries. If they start selling, the U.S. dollar will fall and accelerate gold's rise.
What are your favorite stocks?
Our largest holdings are Newmont Mining (NEM) Gold Fields, and Harmony Gold Mining (HMY) These are profitable, large-cap miners with solid balance sheets. We also own Placer Dome (PDG), an undervalued laggard that has good growth prospects. Finally, we own a number of mid- to small-cap producers, such as Golden Star Resources (GSS) and IAMGold. These may become acquisition targets as gold's price rises and the industry looks to fill production gaps.