We already have a new gold standard, says Marc Faber
Source: BI-ME , Author: BI-ME staff
Posted: Fri March 19, 2010 6:49 pm

INTERNATIONAL. Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, said the markets have created their own gold standard because of uncertainties regarding other asset classes.

Speaking to 'CNBC Squawk Box Europe' Thursday, Faber said: "I think we already have now a gold standard created by the market place".

"We have the exchange traded funds that have proliferated and we have more and more physical buying of gold," he added.

Faber pointed out that between 2001 and 2008, gold outperformed bonds and stocks, but starting with 2009 stocks outperformed. "This means investors must own gold because generally retail investors cannot move in and out of different assets like institutional investors," he said.

Investors should avoid bonds and cash over the next 10 years and choose stocks instead, he said, but warned that printing money will lead to an economic collapse in the end.

"Before we have the final collapse that will be a deflationary collapse, we will have more and more money printing."

“I think interest rates forever in the US will be at zero. By zero I mean below the rate of inflation," Faber told CNBC.

The same pattern occurred after the 2001 recovery. The fed fund rates went from 1% in June 2004 to 5.25% in August 2006 but there was never any monetary tightening

"It will result in a lot of inflation but inflation has a lot of different symptoms."

The financial sector, especially firms that know how to move money quickly between various asset classes, stand to gain from the increasing volatility, Faber said.

Discussing US Treasurys, Faber said an extreme bubble has been deflated for the moment and yields are likely to rise sharply over the next years.

"I still think that Treasurys are overpriced," Faber said told CNBC.com.

Yields on 10-year US Treasurys are likely to rise to between 10%-20% over the next 5-10 years because of inflation and oversupply, he said.

Writing in Gloom, Boom & Doom Report, Faber said Money-printing is just another way for governments to silently default on their debt.

"When a company or a government actually default on their payment obligations, the process is relatively fair because lenders get just 30, 60 or 80 cents a dollar for the money they lent," Faber wrote.

"But if a government decides to default through money printing, the burden of the default isn't shared equall".

"Defaulting through money printing means the repayment of the creditors occurs in a currency whose purchasing power was severely curtailed through the money-printing process," Faber explained.

Rising cost of living, a depreciating currency against other currencies or against precious metals and commodities are common symptoms of a loss in the purchasing power of a currency.

In a CNBC TV-18 interview earlier this month, Faber said gold prices will continue to rise in value against all depreciating paper currencies.

As gold's supply can't be increased at the same rate as you can print money, Faber recommended everybody should buy some gold every month "forever".

In an interview with the Financial Times in Hong Kong last month, Faber said:  "All paper currencies will continue to lose their purchasing power as they have over the last 100 years or so".

"I suggest that people accumulate gold. They shouldn't market-time the gold price, because we're going to have volatility...But I will not sell my gold, not for as long as [the current US administration] is structuring fiscal, monetary and foreign policies.


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