Gold may be on vacation, but it will come back soon, according to John Hathaway and Doug Groh, co-portfolio managers of the Tocqueville Gold Fund, because extreme monetary policies seen across the major economies in the world — namely Japan, Europe and the United States — are pouring a foundation of support beneath the yellow metal and its miners.

In a column for Investment News, Hathaway and Groh wrote that government policy is one of the best things gold has going for it.

The duo wrote that dovish Janet Yellen's nomination as the next head of the Federal Reserve means near-zero interest rates are likely to be extended against a backdrop of increased gold demand in emerging markets like India and China.

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The Tocqueville fund managers prefer gold mining stocks rather than the metal itself, as gold mining stocks usually trade at 1.5 to 2 times the value of the underlying commodity. But that price relationship has come undone and now miners are trading for less.

"While gold has declined primarily due to downcast investor sentiment and a robust equity market, the price of miners has fallen for different reasons. The industry is undergoing various structural and operating changes. Miners are attempting to become more efficient, driving down the cost to extract an ounce of gold."

Hathaway and Groh explained that when gold was at much higher prices, new mine development and acquisitions were emphasized, while cost-control efforts were pushed into the background. Now the opposite has occurred, which they declared a "positive development."

Miners are cutting production costs, which they predicted would allow stronger companies to prosper. The average break-even production cost for miners is about $1,200 to $1,250 per ounce, they wrote.

"Using that guideline, we believe that about 20 percent of miners are unprofitable. These less efficient companies need to drive their operating costs down further, participate in joint ventures, or seek consolidation [merger] alternatives."

Hedge funds have recently trimmed their bullish positions in gold and added to short positions, Bloomberg noted. Gold has sagged 24 percent this year, heading for the biggest decline since 1981.

MarketWatch columnist Mark Hulbert said that despite gold's fall from grace, the average gold investor is still holding on.

"That's worrisome from a contrarian point of view," he wrote.

"That suggests to contrarians that more declines are necessary to rebuild the veritable wall of worry that rallies like to climb."

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