Bailout will discredit all currencies, help gold, Tocqueville's Hathaway says


From Bloomberg News
via Asbury Park Press, New Jersey
Tuesday, September 23, 2008

Gold will be the main beneficiary as concern about the U.S. government's Wall Street bailout triggers a plunge in the U.S. dollar, said Tocqueville Asset Management LP's John Hathaway.

The dollar fell for a fourth session yesterday on speculation that Treasury Secretary Henry Paulson's $700 billion plan to bail out banks will inflate the budget deficit. Gold extended its gains in the past week to 16 percent before slipping back $6 to $903 an ounce in early trading in New York today.

"The dollar's crossed the Rubicon. It's the point of no return," Hathaway said Monday in an interview in New York, where the fund is based. "It's just loss of confidence in paper currency of whatever brand it is."

The dollar, which rose to $1.4724 per euro in New York, may slide to $1.60 and beyond, triggering a move by European central bankers to devalue their currency to help their economies remain competitive, said Hathaway, who manages $800 million in gold and mining stocks.

"They'll trash the euro because the euro-dollar exchange rate above 1.60 will just be chaos for the European economies," Hathaway said. "They'll debase the euro somehow. They'll have no choice. There's no paper standard to measure it against, which is why this is coming down to gold."

The recent market turmoil, including Lehman Brothers Holdings Inc.'s bankruptcy and the sudden acquisition of Merrill Lynch & Co. by Bank of America Corp., has "irreparably shaken" confidence in financial markets, Hathaway said. So too has investors' belief that the government can successfully repair the damage, he said.

Before the recent financial turmoil, most people would have accepted "the mythology" that there were "smart guys in the Fed, the Treasury, and other central banks who will sort this out," Hathaway said. "Now most people don't believe that. Everywhere you look, it's so transparent, they're panicking, they're making it up as they go along."

The resurgence in the gold price, which dropped 28 percent this year from a record $1,033.90 on March 17 before staging a recovery on Sept. 9, will help push mining stocks higher, said Hathaway. His largest holdings include Jersey, Channel Islands-based Rangold Resources Ltd., Vancouver-based Goldcorp Inc., Denver-based Newmont Mining Corp., and Johannesburg-based Gold Fields Ltd.

The 16-member Philadelphia Gold & Silver Index, which tracks the performance of some of the world's largest precious-metal producers, has surged by as much as 39 percent from its lowest point this year on Sept. 11.

"Considering the devastation in the gold sector and how far they've been sold down, a change in sentiment could lead to enormous returns in some of the most depressed names," Hathaway said.

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