"There's a big short squeeze taking place," he said, adding that paper claims on gold – from futures, derivatives and exchange-traded funds – "are demanding settlement in terms of physical gold."
Hathaway said that the underlying gold bullion was leveraged 100 to 1.
(Read more: Why invest in global trouble spots?)
"It looks like, to me, that people are losing confidence in the traditional intermediaries between the paper and physical markets, and you can see that with the dramatic drawdown in registered Comex warehouse stocks," he added.
Hathaway also noted the disconnect between lower gold prices in New York and London and increased demand in Asia, where investors were buying the precious metal "buying hand over fist."
(Read more: Stocks get 'Wile E. Coyote' moment: Josh Brown)
The prospect that the Federal Reserve will begin reducing its $85 billion-per-month asset-purchasing program wouldn't likely do much to affect gold prices.
"Tapering is just like kissing your sister," he said. "It just seems to me very unlikely that an action can take place without a substantial collateral damage in the financial markets, and I think that's the real reason to own gold."
(Read more: Time to move into cash, strategist says)
Josh Brown of Fusion Analytics saw it differently.
"It may be breaking out here, but it hasn't yet. So, it's still just a rally in a bigger downtrend, in a bear market," he said. "That could be invalidated. It could really break out. But until it happens, this is a commodity. You want to trade this based on the technicals."
— By CNBC's Bruno J. Navarro. Follow him on Twitter @Bruno_J_Navarro.
— CNBC's Sophia Pitt and Michael Newberg contributed research to this report. Follow Newberg on Twitter: @MikeNewberg.
Trader disclosure: On Aug. 15, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Josh Brown is long TLT; Josh Brown is long AAPL; Josh Brown is long XLU; Josh Brown is long XLF; Josh Brown is long FSLR; Enis Tanner is long GS; Enis Tanner is long NUE; Enis Tanner is long CF call fly; Enis Tanner is long SPY Puts; Enis Tanner is long DXJ; Enis Tanner is long UUP; As of /15 Michael Murphy is long BAC; Michael Murphy is long C; Michael Murphy is long MSFT; Michael Murphy is long LEN; Michael Murphy is long TOL; Michael Murphy is long F; Michael Murphy is long INTC; Michael Murphy is long CAT.