Marc Faber, George Soros Agree Gold Prices Set to Rise
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Is gold in a cyclical bull market that could last for years to come or is it another asset bubble created by loose monetary conditions about to crash? The debate has been raging for some time and shows no signs of abating.
But, the strange thing about this debate is that some of the perceived opponents may actually be more in agreement than they would let us believe.
Renowned billionaire financier George Soros became the latest investor to issue a warning in January that with interest rates low around the world, policymakers are risking generating new bubbles which could cause crashes in the future.
Last month it was revealed that Soros more than doubled his fund's holding in the biggest gold exchange-traded fund (GLD) in the fourth quarter of 2009, according to a filing with the US Securities and Exchange Commission.
Soros Fund Management LLC held nearly 6.2 million shares of GLD valued at about US$663 million as of December 31, adding 3.728 million shares valued at US$421 million That's up from roughly 2.5 million shares at the end September.
Speaking to The Daily Telegraph, on the fringe of the World Economic Forum, Soros said: "When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment". The ultimate asset bubble is gold," he added.
So what's going on?
Perhaps Soros thinks gold is going to bubble but the bubble is going to last for a while and he wants to profit from it, Jeffrey Nichols, managing director of American Precious Metals Advisors and an adviser to central banks and mining companies told Bloomberg.
We could have a bubble but gold can reach US$2,000 or US$3,000 before it's over, Nichols said.
Faber: Gold bull
Marc Faber the Swiss fund manager and Gloom Boom & Doom editor has been consistent about his bullish views on gold.
Speaking at Russia's Troika Dialog Forum in Moscow last month, Faber said: "The governments of every developed economy will eventually default on their sovereign debts, so the one thing he will never do in his life is 'sell my gold'. Potential defaulter include the US, the UK and Western Europe.
"I'm convinced the US government will go bankrupt, but not tomorrow, and before they do they will print money [and] you'll get a depression with very high inflation rates."
In an interview with the Financial Times in Hong Kong last week, 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.
"In the US, I don't think we will have real [positive] interest rates at any time in the next 10 years."
Faber has said in many interviews that he sees dips in gold as an opportunity to buy some more bullion.
But how long can the gold bull market last?
"The gold bull market will come to an end when sovereign wealth funds — sick and tired of their investments in financial stocks — will finally purchase gold," wrote Faber back in January 2008 in his Gloom, Boom & Doom report.
What does the market think?
Traders remain more bullish than in past years, with speculative long bets on gold on the New York Mercantile Exchange outnumbering short wagers by more than 7-to-1, compared with less than 5-to-1 in the three years before the September 2008 collapse of Lehman Brothers Holdings Inc. spurred demand for gold's perceived safety, reported Bloomberg.
March 3, 2010
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