keep gold holdings outside the reach of potential confiscators.
Speaking with Chris Martenson last week, Faber believes that central bankers will print money at any sign of a credit contraction or drop in economic activity. Money printing, Faber said, is a strong reason behind rising oil prices, slowing economic activity especially in those countries that import it. Get my next ALERT 100% FREE
The virtuous circle of money printing, higher oil prices, slower economic activity and more printing won’t stop, according to him. Moreover, Faber speculates that, at some point, the money printing must stop and the financial system will become a catastrophe.
As the system begins to savage financial institutions in the U.S. and Europe, too many investors will experience what customers of MF Global experienced late last year. In response, these investors will most likely then turn to gold. But, in doing so, they will also come under threat of confiscation by governments desperate to save the system.
“As you know, we had MF Global. What did the clients get? Less than what they had at the company,” Faber told Martenson. “And I think eventually the financial system will be an MF Global, where you don’t get your money back from the banks and the investment banks and from the mutual funds and so forth and so on. And so I think everybody has to think to himself: how do I protect myself against the Black Swan event?”
In the past, several Fed Governors have suggested that the Fed should unwind, or at the least, level its balance sheet at the first sign of accelerating consumer price inflation. Faber said that any talk along those lines by the Fed should not be taken seriously. According to him, no matter what the Fed says, it cannot reverse the credit-based Ponzi scheme without collapsing the system.
“I think the money printing will go on, unless the Fed would come up and say, we’re no long going to print any money; the monetary base will remain steady,” said Faber. “And even in that case I wouldn’t believe them.”
Martenson, who lost his $50 “placeholder” account with MF Global, asked Faber to speak on the subject of safe gold storage.
“Where is anything safe? I mean, I think in a safe deposit box is relatively safe, but maybe not in a safe deposit box in the U.S.,” said Faber. “If you look at the MF Global case, it seems—I don’t know for sure—but it seems some people got their money, but not others. This is a very disturbing thing to happen in the financial system. And when I see this, I think we have to be very prudent, so I would hold a safe deposit box outside the U.S..
“Now the question is: how is it to hold a safe deposit box with a bank if the bank closes down. And this happens,” Faber continued. “You can also hold safe deposit boxes in duty-free stores, warehouses at airports around the world. In Switzerland we have them; in Singapore we have them, and so forth. So that’s a possibility.”
Since the start of the financial crisis in 2008, Faber has said that, because the global economy is credit addicted, more and more investors over time will move into gold and equities as a means of preserving capital. But there will come a day when central bankers cannot sell further debt issuance to rollover the ever-increasing mountain of debt. That’s when governments will turn to gold and seek to acquire it by any means, including confiscation.
“One day there will be a credit collapse, but I think we aren’t yet there. Before it happens they’re going to print,” Faber told Financial Sense Newshour’s Jim Puplava in early December. “And when printing as it has done in the last 12 years in the U.S. leads to discontent populations, because when you print money then only a few players in the economy that benefit, not the majority of households.
“Populist political leaders vying for votes from the masses will opt to score easy points with the 90 percent have-nots at the expense of the haves, with draconian taxes on assets such as gold and silver held by the haves, not just through taxes on capital gains, but maybe even through a wealth tax on the holdings.
“This is what the tyranny of the masses can do,” he said.
Related: SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), Sprott Physical Gold Trust (NYSEARCA:PHYS), ETFS Gold Trust (NYSEARCA:SGOL), iShares Gold Trust (NYSEARCA:IAU).
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