Dominique de Kevelioc de Bailleul: In an exclusive interview with The Gold Report, the editor and publisher of the Gloom Boom Doom Report Marc Faber says about his personal gold holdings: it represents the “biggest position in my life,” adding that investors who don’t own any gold should start buying “right away.”
Prior to the Nasdaq bubble, Marc Faber had advised that investors should begin accumulating gold as a hedge against central bank money printing and the asset bubbles it creates. Get my next ALERT 100% FREE
Without saying so, directly, Faber disagrees strongly with Warren Buffett’s recent and controversial negative assessment of gold as an asset. Faber has stated on numerous occasions that investors who own no gold take on enormous risk, including debt defaults and/or currency devaluations, as central banks of the G-7 seek to simultaneously devalue its respective currencies. He believes those risks remain alive and well.
“If you don’t own any gold, I would start buying some right away, keeping in mind that it could go down,” states Faber.
But the 40-year veteran Swiss economist and investment adviser also warns investors to expect extreme volatility in the gold market during the remainder of the global sovereign debt crisis—a crisis that could continue for as long as the remainder of the decade.
As central banks of creditor nations continue to accumulate gold as a hedge against money printing from central banks of debtor nations, bullion prices should continue to rise over time, according to Faber.
But, as investors witnessed in 2009, gold can fall sharply during periods of global market volatility and hedge fund redemption, as gold becomes the most liquid asset in times of a liquidity crunch and elevated counter-party risk—a feature unique to gold, but dismissed or under-appreciated by Buffett.
Therefore, as the global banking system teeters, investors can expect future gold prices to move up or down as much as $400, sometimes within a very short period of time (maybe, in one day), according to 40-year gold market veteran Jim Sinclair.
However, as a long-term accumulator of gold, Faber looks at panic selling in the gold market as an opportunity to buy more bullion at lower prices—a viewpoint shared with his American friend Jim Rogers of Rogers Holdings, who, on numerous occasions has recommended buying gold, silver and commodities during steep sell offs and market panic.
“The possibility of the gold price going down doesn’t disturb me,” says Faber. “Every bull market has corrections,” adding that investors who own no gold today should immediately begin to incrementally allocate no more than a total of 25 percent of their portfolio holdings in gold—that is, if investors seek to mirror Faber’s own portfolio allocation strategy.
As far as the debate whether gold is in a bubble, Faber doesn’t hold to that thesis. He, on several occasions, has said the signs of a bubble in the gold market aren’t there. So few investors hold any gold, never mind raving about it as a road to riches, as was the case of the Nasdaq and real estate.
“No, gold is not in a bubble. It wasn’t in a bubble in 1973, either, but it still corrected by 40% then,” says Faber, referring to the negative sentiment at that time in the gold market after the price sank to nearly $100, from a record high of $200.
Following gold’s nearly six-fold increase to $200, from the official price of $35 in 1971, so-called market “experts” had believed that the gold bull was done. It should be noted, however, that “Mr. Gold” Jim Sinclair was not among the gold bears of 1973. Sinclair remained bullish until near the market peak of Jan. 1980.
Today, Sinclair expects gold to surpass $10,000 before the bull market in the precious metal is over.
Faber agrees. “I don’t believe gold is anywhere near a bubble phase,” he says, squarely contradicting famed economist Nouriel Roubini’s call for a gold bubble pop after the yellow metal retreated to the $1525 level, from a record $1,922 per ounce of Sept. 2011.
Following Roubini’s provocative Tweet on Dec. 14, “Where is 2,000?” a fierce debate between Peter Grandich of the Grandich Letter and Jon Nadler of Kitco ensued. The gold bull Grandich, who bet Nadler $1 million that gold will reach $2,100 before it reaches $1,000, has still not received a response from the gold bear Nadler.
Following gold’s steep correction from its all-time high of $1,922 in September 2011, Faber told CNBC, “We’re now close to bottoming at $1,500, and if that doesn’t hold it could bottom to between $1,100-1,200.”
Today, Faber isn’t ready to state the correction in gold is over. He doesn’t know whether the Fed will wait for a another ‘deflationary’ scare to grip the market before formally announcing QE3, or will preempt the market with an inevitable announcement of more asset purchases by the US central bank.
“This year the gold price may not exceed the $1,922/oz high that we reached on Sept. 6.,” states Faber. “Maybe it will. I’m not a prophet. I’m just telling people that I’m buying gold and holding it. I don’t speculate in gold. If you buy gold, you better understand that the price could always move to the downside.”
Instead of guessing which way the gold price will go from here, Faber believes investors with no meaningful position in gold should scale in monthly as a way of building a position.
“I have argued for the last 12 years that investors should buy a little bit of physical gold every month and put it aside without concerns about corrections,” says Faber.
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