“A very important shift in the story line for gold”

The Federal Reserve is in serious danger of losing its credibility, according to long-time gold bull John Hathaway.

In an interview this week with King World News, Hathaway – manager of the Tocqueville Gold Fund – argued that the decline in the Fed’s credibility will help propel the gold price to new all-time highs.

“Here we are going into Jackson Hole, where all of the central bankers get together for a few days in Wyoming, and they are now talking up QE,” Hathaway noted.  ”And this time you are hearing them talk about open-ended bond buying by the Fed…So here is a huge turnabout in terms of the story line that’s been plaguing gold for the last year.  Really, what’s most interesting to me is the credibility of the Fed.  I have a friend who’s a Fed watcher, and I’ve known him for many years, and he’s just completely dismayed.”

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Hathaway added that “He said, ‘The Fed basically has three tools.  It has a very strong ability to influence short-term rates.  That still holds.  They have some ability to influence long-term rates.  And then they have their word, their pronouncements, their credibility.’”

“Here’s a guy who’s been watching the Fed since 1970, maybe longer, and he said, ‘They are in danger of losing their credibility.’  When you think about it, the dollar, as Jim Grant has always put it, is a ‘faith-based currency.’  The credibility of the Fed is integral to that confidence the world has in the dollar, and the dollar’s value.”

“So if that credibility, which I think is shot, once that veil of confidence is removed, you just don’t know what the market reactions could be,” Hathaway continued.  ”I think that’s a very important shift in the story line for gold over the last year.”

Looking ahead for the price of gold, the Tocqueville Gold Fund manager stated that “We could revisit last year’s high around $1,900, and you will still have a lot of the market saying we are just forming a double top.  So I think gold probably has to go through $1,900, print $2,000, and look like it’s going higher to get people excited.  But I think we are going to see that.”