The Pols Will Fiddle

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Marc Faber Sees Substantially Higher Gold Prices Over the Next 5-10 years, Lower Purchasing Power of Paper Money

Business Intelligence Middle East

     

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.

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Dr. Marc Faber [send him mail] lives in Chiangmai, Thailand and is the author of Tomorrow’s Gold.

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