In a presentation at the CFA Analyst Seminar in Chicago, the popular market commentator argued asset markets are broadly overvalued and investors should be accumulating cash. To survive the looming financial crisis and economic collapse, the author of the Gloom, Doom, and Boom Reportrecommended investors keep a quarter of their portfolio in gold. (Source:Faber likes cash, says real estate and emerging markets equities to outperform, last accessed: July 29, 2015.)
“Gold is insurance if the banking system fails,” he said to attendees. “As an investor I’d like to own something outside the banking system, and that includes real estate, art and gold.”
For just a tiny glimpse of the role that gold will play in the event of a market collapse, look no further than China. The yellow metal rallied somewhat on Monday and Tuesday, with investors rushing at a safe haven asset as China’s crisis continues. This rush would turn into a stampede if such a crisis hits U.S. stock markets, as Faber predicts could very well happen.
“If our banking system goes through any hiccups, you want to have real estate, art, and gold in your possession, not bonds or treasuries. Gold prices benefit in times of uncertainty, and we are on the cusp of a major global financial crisis,” says Faber.
The gloomy economist is a staunch supporter of buying assets when they are undervalued, and gold certainly fits the bill at the moment. Whether you buy now or wait for it to drop lower in price is your call, but don’t miss out on the upswing.
While investors are looking for sound growth, higher interest rates, and diminished inflation, China remains the bullish wildcard in the gold equation. Its stock market crisis could very well spread globally, shifting demand firmly in favor of gold.
Still not convinced? Faber points to the extreme dissonance between real and virtual demand for gold, and how this will play out if another crisis hits.
Gold prices on international markets are dangerously out of touch with the physical realities of its physical supply. Futures markets inflate the supply of gold through virtual transactions which keep the price artificially low, while demand for actual gold is high.
Translation: when markets stop reflecting fundamentals, you can bet we’re in for a correction at some point. Don’t be caught on the wrong side of the equation when it happens.
- Source, Profit Confidental