While a further move down is possible, investment fund manager, Marc Faber says over the long term gold should move higher
Posted: Thursday , 03 May 2012
Swiss-born and educated Marc Faber's distinct voice is a common sound on CNBC and Bloomberg TV when it comes to big-picture forecasting in investments. The contrarian views of his "Gloom, Boom & Doom Report" often garner headlines, but Faber does go along with the crowd when it comes to pointing out the dangers of rising government debt and unabated monetary intervention. HAI Managing Editor Drew Voros caught up with Faber at his Hong Kong residence and spoke to him about gold, the Treasury market, which countries should be out of the eurozone and what an ideal portfolio allocation looks like.
Hard Assets Investor: At Inside Commodities last December in New York City, you presented a line chart that compared gold prices to U.S. federal debt and showed the parallel trajectory lines of both. With debt increasing every day, your charts say gold will keep increasing, right?
Marc Faber: People say the price of gold is in a bubble stage and it is up substantially from the lows in 1999, which was, at the time, around $252 per ounce. But at the same time, we had an explosion of debt, not just government debt, but private sector debt, and an explosion of unfunded liabilities such as in the pension fund industry, and not just with Medicare, Social Security and Medicaid.
So now, 12 years after the gold's low, we are essentially in a situation where maybe the price of gold should be much higher because the economic and financial conditions are worse than they were 12 years ago. I go to lots of conferences and I usually ask the audience, "How many of you own gold?" Normally, hardly anyone owns it. I've been to conferences with thousands of people attending, and nobody owned any physical gold.
I doubt we are in a bubble stage. When you went to an investment conference in 1989, everybody owned Japanese stocks. And in 2000, everybody owned tech stocks. That is the bubble, when the majority of market participants own an asset. I think there are more people that own Apple stock than gold.
HAI: What's the biggest influence on gold right now? Is it all this sovereign debt?
Faber: We had the big move. The gold price overshot when it went to $1,921 on Sept. 6 last year. And then we oversold on Dec. 29, when gold went down very quickly to $1,522. I suppose around this level, gold's price is moving sideways. I wouldn't mortgage my house expecting prices to go up. They could still go down more and we would still be in a bull market even if gold prices dropped to $1,200/oz, although that's not in my forecast.
I'm telling every investor, in the long run, that central banks all over the world are going to print money because they know nothing else. The purchasing power of currencies will continue to go down. In other words, the price of gold and silver will move up in the long run.
HAI: Why are central banks becoming net buyers of gold?
Faber: We have international reserves growing from a $1 trillion in 1996 to $10 trillion now, which is a symptom of monetary inflation. And these international reserves accumulate principally at the hands of Asian central banks and central banks in emerging economies. For instance, Thailand sits on foreign exchange reserves of $150 billion, which, on a per-capita basis, is larger than the Chinese central bank reserves. The Russians also have large reserves, as well as the Brazilians and others. These central bank reserves, until now, were principally U.S. dollars. Then they diversified somewhat into euros.
Even a central banker, with his just-below-average intelligence, will one day notice that maybe it's not that desirable to be in the U.S. dollar or Treasury bills that have essentially no yield. In other words, you have a negative-real-interest rate on these dollars. So they move money into gold. They should have done it a long time ago. But don't expect too much from a central banker.
HAI: Gold mining stocks have been depressed for some time. Do you think that will continue? Finish reading @Source
