Wealth Insurance: The Case for Owning Gold

An Interview with John Hathaway

When that happens, you’ll have essentially a rerun of the 1970s. It’s not going to be exactly the same, but there will be tough markets for financial assets and gold should do, on a relative basis, really well.

OR: Where do you see gold a year from now? Do you think we’ll see a change in sentiment by then?

Hathaway: It seems to me that gold is in a very intense low these last six months. You would think that from that you would get a pretty respectable rally that might break a number of these downtrend lines that have been well-established and get people to think that maybe this short gold trade, long whatever, is yesterday’s game.

I can see that happening. I can see gold rating maybe a couple hundred dollars higher over the next 12 months. It wouldn’t surprise me at all. I think that would break the spell that we’ve been in. I remember that back in 1999, when gold went from $250 to $300, I thought that was fantastic. I’m saying the same thing now: basically you want to break the negative psychology.

Who knows where the witches' brew that has been simmering for the last seven years takes us? I think that there’s a lot of stuff that’s going to happen that is not in stocks at record valuations or government bonds at zero interest rates or negative rates. I think that the pendulum will start to swing the other way and all kinds of gremlins and goblins are going to pop up that nobody is talking about today.

I don’t want to be the one to say the world is going to end, because it’s not going to. We’ll manage our way through it just as we did in the seventies, but gold would be a great place to be when the gremlins show up. We’re thinking wearing two hats. People who have owned gold for all the right reasons have been castigated by their clients because it’s led to underperformance. That’s just thinking about superficials: is gold going up or down? The other thing is, in the longer context of preserving wealth, a wealthy family should have gold. They should have it just like they have insurance on their house and insurance on their lives and their health. Then you don’t look at it. That rationale for holding it -- that you don’t hold gold’s feet to the fire because it caused you to underperform some benchmark -- well, nobody in the U.S. has that view of gold now. And I think that view of gold will resurface when we go through a bear market. Maybe a decade-long bear market like we had in the 1970s.

OR: Fantastic. Thanks, John.