Tocqueville Gold Strategy Investor Letter – First Quarter 2016

by John Hathaway

The dollar price of gold rallied 16.14 percent during the first quarter while gold mining equities rallied 53.45 percent (XAU Gold & Silver Index). It appears to us that the nearly five-year decline in the precious metals sector has concluded, and that the stage is set for a renewed advance towards all-time highs. What is the investment rationale to support our view?

1. The war on savings and capital being conducted by central banks seems likely to drive investors towards alternative safe assets. We believe that prominent among the available options is gold.

2. At the zero interest-rate boundary, bonds are no longer capable of providing a stability hedge for equity portfolios; investors may look to gold to fill that vacuum.

3. A deepening shortage of physical gold means that even modest capital inflows into precious metals should drive an outsized price response.

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