Kitco's Peter Hug: Gold Bottom Already In

April 22, 2013


Hug (cont’d.): If the scenario for a stronger U.S. dollar is that the U.S. economy really starts to grab hold, and the Fed starts to raise interest rates, in that scenario, the dollar strengthening would be very detrimental for gold. And there I think the gold cycle will end. But I don’t see that ending until we get either an inflationary surge, or much, much more geopolitical or financial risks occurring over the next year. And in that scenario, I can easily see gold trading back to $1,600, or even $1,800. It really depends on how crazy it gets, and what causes it to start the acceleration.

So when somebody says a stronger dollar is negative for gold—yes. But it’s what created the stronger dollar that you have to analyze. Makes sense. As a final thought, do you have a preferred method of holding gold, as in bullion, coins, ETFs? Or does it even matter?

Hug: Again, it really depends on your psychology. And there’s a breakup of psychology specifically as it relates to the U.S. market. There’s a segment of the U.S. market that believes, right or wrong, that the government is, somewhere down the road, going to control gold ownership again, and they’re terrified that there’s going to be anarchy in the streets. Now, I know it sounds a little crazy, but there is a significant segment of the market in the U.S. that buys metals based on that theory.

The irony of it is that they buy it from a U.S. dealer, and they store it in the U.S. But it’s illogical. If you think the government is going to ban gold ownership, or is going to ban your financial capital movement freedom, it makes no sense to hold your metal in your country of residence. Because the first thing the government is going to do, if that scenario proves correct, is they’re going to go to the dealers. And they’re going to say to the dealers, “We want every single record of every ounce of gold you’ve ever sold to any American in this country.”

So if you’re in that camp owning physical metal, you should consider having it stored outside of the U.S. because it’s not a financial asset, it’s not a bank deposit. If you’re not worried about that type of “catastrophic” issue, but you want to hold metals as a percentage of your portfolio, it makes no sense to buy physical metals, because you’re paying very, very high premiums, fabrication costs, storage costs, insurance costs; you have risks associated with holding physical metal. Those people should consider either investing in a mutual fund that invests in baskets of commodities, metals included, or buying the ETFs directly as a stock. It all goes back to your psychology.



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