Yahoo Finance Marc Faber: Own Gold Over Miners
Guru shares his thoughts on the gold market and miners.
Guru shares his thoughts on the gold market and miners.
[The following is an excerpt from an article that originally appeared on Alpha Think Tank at ETF.com and is republished here with permission.]
Marc Faber is editor and publisher of "The Gloom, Boom & Doom Report" and the founder of Marc Faber Limited, an investment advisory and portfolio management firm, based in Hong Kong. Nicknamed "Dr. Doom," he is a famous contrarian investor known to scope out deeply depressed and overlooked assets. Dr. Faber has authored several books, including "Tomorrow's Gold: Asia's Age of Discovery." Widely followed by institutions and retail investors, he appears regularly on CNBC and Bloomberg TV.
Dr. Faber recently sat down with ETF.com to discuss the Bank of Japan's latest stimulus. He explains why gold is favorable in inflationary as well as deflationary environments, why he prefers physical gold over gold miners, and the price at which he sees opportunity in oil. Finally, he shares his favorite current contrarian play.
ETF.com: Gold plunged immediately after the [Oct. 31] BoJ announcement [that it would expand its asset purchases], which came only days after the Federal Reserve announced the end of QE. Where do you see gold headed in 2015?
Faber: I think it will go up. But can it go down first? Yes. In general, I would say the game that central bankers are playing is very clear: They start out with QE1 in the U.S., and then that forced essentially other central banks to do the same, to also go QE. They're kind of passing each other the ball. One stops, the other one starts. It's basically a game designed to kill the purchasing power of paper money. I'm not sure they're aware of it, but in my view, this is the beginning of the end of paper money in this century.
ETF.com: That being the case, are you saying you expect inflation? Are you more in the deflation or the inflation camp?
Faber: My sense is that under some conditions, money printing may actually lead to deflation rather than inflation. It may lead to some deflation in some sectors of the economy but inflation in other sectors of the economy. For the last few years—I would say last 10 years—in the U.S., we had inflation in asset prices, especially financial assets. But at the same time, wages, in inflation-adjusted terms, went down.
So this is a very complicated issue. It hasn't been resolved yet how it will end. This is a new chapter in economic history. Usually in the past when they printed money, it didn't end well. But in this case, because everybody does it, it won't end well either. But we don't know when—three years from now, maybe five years, maybe 10 years from now.
ETF.com: Most investors assume that gold is a great inflation hedge. Do you think gold can do well even in a deflationary environment?
Faber: Let's put it this way: Assuming there is a lot of inflation, gold will do OK. In other words, it will do better than financial assets and other prices in the system. If there is deflation, then we have to assume that there is systemic risk, that the whole system collapses; in which case, if you as an investor have the choice to buy French government bonds yielding 1.21 percent or gold, you will be better off in gold, provided the safe custody of this gold is good.
ETF.com: So at this time, looking out into the next year, are you bullish on gold?
Faber: I've been recommending gold since the late 1990s when it was below $300 an ounce. I don't regret that I have continuously accumulated gold. I look at gold like an insurance policy. It gives me some sense of security. Each individual can no longer trust central banks. They're all basically printing money. So each individual should have some gold, to be his own central banker.
In that sense, I recommend every individual hold some gold and accumulate some gold. Not with all his money. If you buy an insurance policy, you don't put all your money into an insurance policy. But I would put some money in my insurance policy.
ETF.com: What about gold mining shares? In just the last couple of weeks, they've been clobbered. Are you seeing this as a buying opportunity? The last time we spoke, you pointed out that gold miners were depressed. They're now even more depressed.
Faber: They became extremely depressed in November/December 2013. Then, the Market Vectors Global Junior Gold Miners Index rallied from the lows by 40 percent. They subsequently came right back down, and it's now somewhat lower than it was in November/December 2013. So, essentially, if you bought that index and you held on to it, you lost money, maybe about 8 or 10 percent.
In general, my advice to investors is to own physical gold and not gold mining shares. Because in a disaster scenario, you don't know what financial assets will be worth, whereas physical gold is in your possession. You can store it at home or in a safe deposit box. You just have to store it outside the U.S. But that is what I recommend investors do.
At the same time, I would say at the present time—as was the case a year ago—gold mining shares are extremely depressed compared to other investments. So if someone wants to take a gamble or wants to invest in an asset class that is inexpensive, I would say gold shares are now absolutely and relatively very inexpensive.
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