Marc Faber, renowned investor and editor of The Gloom Boom & Doom Report, said that the gold price will likely fall further in the summer months. Nevertheless, Faber still remains bullish on both gold and silver in the long run. He points out that people who do not buy precious metals have implicit confidence in the ability of central banks to contain the global financial and sovereign debt crisis, which in his view, is not a good bet.
Faber, who correctly predicted the start of a correction in global equity markets at the beginning of May, believes that both gold and silver will remain under sales pressure in the next three months, though Faber – who lives in Thailand – told Bloomberg last week that he will not be selling any of his precious metals. Faber expects the US Federal Reserve to announce another round of quantitative easing towards the end of this year, which will provide the impetus for moves higher in gold and silver prices. The second round of Fed quantitative easing (QE2) ends today. Over the last seven months, the US central bank’s Open Market Committee has pumped $600 billion of liquidity into the financial system in the form of US Treasury bond purchases.
Via QE1 and QE2, the Fed has created $2.3 billion out of thin air. Faber has been a consistent critic of the Fed’s QE policies; but the Fed ad other central banks have argued that such money printing is necessary in order to fight the greatest recession since the Great Depression.
But despite the Fed’s efforts, US economic growth is slowing significantly once again – annualised first quarter GDP growth was just 1.8%. Decelerating manufacturing growth in many regions, plummeting home prices and stagnation in the national job market – the unemployment rate remains stubbornly high at 9.1% in May (and that’s the official figure) – as well as sinking consumer confidence clearly points to significant economic problems for America. At the same time, the sovereign debt problems in Europe, as well as fears of a slowdown in China, are adding to the bearish mood.
Thus, Faber argues that smart investors should not rely on central banks being able to navigate such treacherous economic waters. People should expect central banks to continue pumping newly-printed money into the financial markets. As in countless past debt crises, currency devaluation remains the one tool that central banks have in their fight against debt, which will encourage more and more investors to buy precious metals – especially gold and silver. Investments in precious metals will increasingly be perceived as a safe hedge against rising inflation and the destruction of capital.