Marc Faber Bullish on Gold Oil Gas China India and Commodities

Big Crisis ahead No Revival in US, Marc Faber Oct 3, 2009

Q: There has been another curious development these past few months, which is that gold has been rallying along with many of these so-called risky assets. Do you read it as a warning signal that gold has been around the USD 1,000/oz mark?

A: Basically to some extent it is a warning signal for central banks because since 2001 the price of gold has gone up four times and that should make central bankers think that there is some kind of inflation in the system. It may not be inflation in consumer prices, although as you know in India recently food prices went up by 15%. So, in general we are in an inflationary environment. We have in the US a central bank that purposely wants to lower the value of the US dollar in terms of its purchasing power and also wants to eliminate one of the functions a cash deposit has which is namely to be a store of value. So, we see an elimination of these conditions, I believe that a lot of people consider gold to be an alternative to cash as I do. Now can the price gold move down somewhat? Yes, of course but I think we have some support for gold prices as it moves down from Asian central banks that own very little gold.

Q: While gold and metals have had a pretty sharp rally, crude has actually not been moving with that much momentum. For crude prices how do you foresee the next couple of months shaping up?

A: We had a more than doubling of crude oil prices between December 28 of this year until recently from USD 32/bbl to over USD 70/bbl. A correction is possible in the order of 10-20% – that I don’t know but in the long run given the increased demand from emerging economies for oil and given the fact that every year we burn more oil than we add to reserves, I think that the fundamentals of oil for the long run are relatively favourable.

Q: As you watched the markets right now, do you see any similarities with the situation that we had in 2007 and just by extension of that if there is indeed a correction who do you think will falter a blink first, the equity markets or the commodities or a completely other asset class?

A: I think that equities after the peak in October 2007 collapsed around the world by plus or minus 50% and now they have rebounded but they are not at their previous highs. In the meantime, in some countries, companies have continued to increase their earnings and so the valuations are not as stretched as in 2007.

But what disturbs me personally is that we had the financial crisis. The cause of the financial crisis was excessive debt growth that was essentially produced by notably the American Central Bank, the Federal Reserve. Now the same people who produced the crisis namely the policy makers in the US, are still in-charge and if you look at what has happened in the US over the last 6-9 months, nothing has been solved. It has been postponed through fiscal and monetary measures, precisely the measures that brought about the crisis in the first place.

So, I think enjoy your ride in asset classes as long as it lasts but I think we are seeding the next crisis and it may happen in the next three months, maybe tomorrow, maybe five years, maybe only in 10 years. But I think the big crisis is still ahead of us.

Source Moneycontrol.com

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