Marc Faber States Gold Far From Bubble Phase

The Gold Report
Mar. 05, 2012

With more than 40 years as an economist to his credit and claiming gold as the "biggest position in my life," Gloom Boom & Doom Report Publisher Marc Faber assures us that gold is nowhere near a bubble phase, but cautions that corrections of 40% are not unusual in a bull market. At the end of March, Faber will share his secrets for surviving corrections at the World MoneyShow in Vancouver. In advance of that appearance, he sat down with The Gold Report for this exclusive interview where he discusses his bias for portfolio diversification in terms of geographies as well as asset classes.

[...]TGR: A couple of weeks ago James Turk told us that he thinks the low price for gold in 2012 was already established early in January. What makes you think it will pull back?

MF: The big rally into Sept. 6, 2011, took the gold price to $1,922/ounce (oz) and then it dropped until the end of the year, touching $1,522/oz on Dec. 29. It has rallied, and is now above $1,700 again, but I don't think the correction is entirely over. Corrections of 40% are nothing unusual in a bull market.

As an adviser, my duty is to always inform people of investment risk. I'm not saying I expect gold to collapse, but telling people the gold price will go up leads them to leverage up and speculate. If the gold price drops $50/oz, they're wiped out. All I'm saying is that, in my opinion, the gold price correction is not yet entirely completed. I see significant support around the $1,500/oz level, but it could drop lower. It depends on global liquidity and on money printing by central banks. We could have a big correction if global liquidity tightens or they stop printing money.

TGR: Over what timeframe are you looking at the correction?

MF: This year the gold price may not exceed the $1,922/oz high that we reached on Sept. 6. 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. If you don't understand that, don't invest in gold—or in anything.

TGR: Investment show commentators have been talking about gold being in one of those mania bubbles you described because it's been increasing for 11–12 years. Do you agree?

MF: No, gold is not in a bubble. It wasn't in a bubble in 1973, either, but it still corrected by 40% then. I don't believe gold is anywhere near a bubble phase. A bubble phase is characterized by the majority of market participants being involved in a market space. I saw a gold bubble in 1979–1980, when the whole world was dealing—buying and selling gold 24-hours a day, globally.

TGR: But not since then?

MF: No. If you went to an investment conference in 1989, 90% of the people there would have told you they owned shares in Japanese companies. In 2000, 90% of them would have said they owned NASDAQ shares. Only about 5% of the participants at an investment conference today would tell you they own gold. Very few people in this world own gold.

I don't believe that we're in a bubble.

TGR: Should people who aren't yet in gold or want to add to their position wait for a correction?

MF: 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. If you don't own any gold, I would start buying some right away, keeping in mind that it could go down.

For the last 40 years in my business I've seen people always lose money when they put too much money into something and then it goes down. They panic and sell, or they have a margin call to sell—and lose money. I own gold. It's my biggest position in my life. The possibility of the gold price going down doesn't disturb me. Every bull market has corrections.

TGR: What do you think about silver as an alternative precious metal to hold?

MF: Gold and silver will move in the same direction, up together or down together. At times, silver will be stronger relative to gold, and at other times gold will be stronger relative to silver. My friend Eric Sprott thinks that silver will go ballistic. I don't know. I own gold. [...]

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