Marc Faber sees substantially higher gold prices over the next 5-10 years, lower purchasing power of paper money
Source: BI-ME , Author: BI-ME staff
Posted: Sat July 16, 2011 6:01 pm

INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor doesn't see a large downside risk for gold. He believes US politicians will come to an agreement over debt and the US will not default.

Speaking in a phone interview from Thailand with CNBC's Worldwide Exchange on Thursday, Faber said: "The risk for investors is not to own any gold".

While predicting that there will be fluctuations, he stressed: "I don't see a huge downside risk for gold, let's say maybe 10% or so".

"I rather see that over the next 5-10 years we will have substantially higher gold prices, or expressed differently, lower purchasing power of paper money," Faber added.

Reiterating his position on holding cash, he said that under a rigid monetary system, with gold as an anchor, cash would be a riskless asset. However in today's environment of printing money, cash is "actually very risky except when asset markets correct on the downside".

Asked by Christine Tan, the CNBC Worldwide Exchange anchor, how real was the possibility of a default in the US, Faber said the US will not default "in terms of not paying the interest on the government debt".

"They will default in terms of paying the debt and the interest with depreciated or worthless dollars," he clarified.

Ratings agency Standard & Poor's warned Thursday there is a one-in-two chance it could cut the United States' prized AAA credit rating if a deal on raising the government's debt ceiling is not agreed soon.

John Chambers, the chairman of S&P's sovereign ratings committee, said "this is the time" for the two sides to tackle the country's long-term debt problems.

"If you get a small agreement, that will lead to a downgrade," he told Reuters in an interview.

A downgrade could raise borrowing costs not only for the United States but also for loans that use the Treasury rate as a benchmark.

So, can US politicians come to an agreement?

"Yes, I think they will somewhere, somehow come to an agreement or they will fiddle around with the debt ceiling or invoke the Constitution whereby the President, in a special situation, can actually increase the debt of the US," Faber told CNBC's Christine Tan.

"Something will have to happen....but, I don't think they will default on the debt," he added.

"It is mind boggling that somebody will buy 10-year U.S. Treasurys at a yield of less than 3%, denominated in US Dollars," he said.

Federal Reserve Chairman Ben Bernanke tempered expectations yesterday the Fed will resume buying bonds.

“We’re not proposing anything today,” Bernanke said to the Senate Banking Committee in Washington. “We just want to make sure that we have the options when they become necessary. But at this point, we’re not proposing to undertake that option,” he said, referring to a third round of quantitative easing, or QE3.

Faber, who in October predicted the Fed will "launch QE3...QE4...QE5 and many more QE's", and in August framed his now famous "They will print and print and print until the final crisis wipes out the entire system," obviously disagrees with the Fed Chairman.

 "If the Dow Jones drops 10%-20% or the S&P drops 10%-20%, QE3 will be a certainty," he told CNBC.

"But the question is whether the markets make a new high, and I think we've seen the highs when the S&P hit 1370 almost two m onths ago, and this high for the year will stand," Faber said.

Note: Dr Marc Faber was born in Zurich, Switzerland. He went to school in Geneva and Zurich and finished high school with the Matura. He studied Economics at the University of Zurich and, at the age of 24, obtained a PhD in Economics. Between 1970 and 1978, Dr Faber worked for White Weld & Co in New York, Zurich and Hong Kong.

Since 1973, he has lived in Asia. From 1978 to February 1990, he was the Managing Director of Drexel Burnham Lambert (HK). In June 1990, he set up his own business which acts as an investment advisor and fund manager.

In 2000 Faber decided to spend more time writing his newsletters as well as growing his advisory business. He moved back to his home in Chiang Mai, Thailand, maintaining only a small administrative office in Hong Kong.

Dr Faber publishes a widely read monthly investment newsletter 'The Gloom Boom & Doom Report' which highlights unusual investment opportunities, and is the author of several books.


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