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Gold prices held their ground late into trading
Tuesday, even in the face of a surge in US equities. Buoyed by a US Federal
Reserve pledge to maintain a low interest rate policy until mid 2013, the Dow rose 612 points (5.7%) in the final 90
minutes of trading. Gold held its ground and today is showing signs of
strength, trading at $1,756.30/oz up $13.30/oz.
Gold in EUR and GBP is trading at 1,224.16/oz and
1,082.26/oz.
A positively correlated move in gold and equities given
the unprecedented volatility seen over the past number of trading sessions is
indicative of a market that is still on tenter
hooks. Large questions of a systemic nature are still weighing down on
sentiment and until an increase in confidence levels manifests, the market
may continue to show signs of fragility and frenetic trading.
Marc Faber, a respected market commentator and author
of the Gloom, Boom & Doom Report, gave an interesting interview on
Bloomberg TV yesterday. His perspective is interesting and thought-provoking,
giving an interesting perspective on the tectonic market events witnessed
over the past two weeks. He echoes our view that the persistent presence of
government intervention as a remedy to the problems in the markets has, and
will continue to be, the biggest contributing factor to the risk going
forward. Transcription provided by Wall Street Pit.
Marc Faber: The Long-Term Treasury Market is a Bubble,
Buy Gold
Excerpts from the interview can be found below,
courtesy of Bloomberg Television.
Faber on whether he thinks the Fed did the right thing
by keeping rates low:
“I
think they did the right thing that they didn’t allow QE3. They can
watch the reaction of assets, whether they will go lower. I think the
market is more likely to move still lower. We are very
oversold. We can have a rebound like we did today, maybe we’ll have a
rebound next week or so, but in general I think we will test the July lows of
last year, the S&P at 1,010. After that, probably we’ll get
probably a QE3 announcement.”
On why he thinks the Fed is waiting on QE3:
“I
think the Fed is underestimating the severity of the coming economic
downturn. Essentially they spent their bullets. It is very difficult to
follow through with QE3 right here, because you have gold prices going
ballistic, and you have the dollar being very weak, and so there are unintended
consequences with implementing QE3 right here.”
On what Faber thinks the Fed should do:
“The
best [the Fed] could do for markets would be to
collectively resign…I think sometimes the best is to do nothing. I
welcome the decision, at least today, that they aren’t doing anything
worse than what they have already done.”
On whether it makes sense to provide any kind of
stimulus:
“What
has QE1 and QE2 done for the labor markets? Nothing at all. It’s done
nothing for the housing markets. It’s lifted stocks and it
created wider wealth inequality in a sense that people who own assets have
done very well, and people that are the lower-income recipients groups, they
are hurt by rising energy prices and food prices.”
On what should be done for the U.S. economy:
“From
1981 to 2007, we have an economy that was living beyond its means. As a
result of continued debt accumulation, GDP was higher than would otherwise
have been the case. Now we have a period of sub-par growth that can last for
quite some time now, and like in the case of Japan after 1989, people instead
of being encouraged to spend, they should be encouraged to save more, and the
U.S. should save more and spend less. And then capital spending will
essentially pick up.”
On the manic behavior in markets:
“I
personally think the Treasury market, the long-dated, are a bubble and it
will be one of the worst investments for the longer term if you buy a
10-year, a 30-year U.S. Treasury so I’m a bit puzzled that Treasuries
are now yielding, are essentially near record lows. I would rather sell
Treasuries.”
“The stock market peaked out on the 2nd of May on
the S&P at 1370. So we’re now around 1010. For many stocks
we’re down 20% or so. We’re very
oversold. I think a rebound is coming but you can forget about a new high.
That is out of the question. Because the technical picture is horrible,
horrible. ”
On why investors are continuing to move to
Treasuries:
“I’ve
been in this business for 40 years and on many occasions, nothing made sense
to me….I think the Treasury market is another example of a gigantic
bubble. The problem with the Federal Reserve policy of essentially zero
interest rates is that they are essentially throwing money at the system, but
they don’t control where the money will flow to. It can flow at
some point into commodity-related stocks. It can flow into gold, oil,
treasuries, but it doesn’t flow evenly
into these assets. In my opinion, the Treasury, the long-dated
Treasuries are essentially the short of the century thing here.”
On whether gold is a bubble:
“I
don’t think it is a bubble, but I think the gold market has exploded to
the upside recently and the correction is overdue. But as I have always
maintained for the last 12 years, every responsible adult should gradually
accumulate gold, because not owning any gold is the trouble with government.
I don’t understand. People of Bloomberg, I hardly know anyone who owns
any gold physically. All of the Bloomberg employees are intelligent people.
They listen to the news every day. They make the news every day. Hardly
anyone owns any gold.”
On what you can do with gold:
“I
disagree [that you can't do anything with gold.] You give your girlfriend
copper rings and I give them gold rings and I keep them longer.”
On how Faber would play the markets right now:
“I
think right now the technical picture is so horrible that I would use a
rebound as a lightning up opportunity. I think [equities] will move lower. I
mean, some say you should move back into emerging economies because the
fundamentals of emerging economies are far better than the fundamentals of
European countries and the fundamentals of the United States. This is
something I will consider.”
“The only thing I have to say, basically the
market has sold off in such a rapid way and with so much momentum that I am
smelling as if something really wrong happens in the next two or three
months, because the market is a discounting mechanism. Like March 2009
the market started to go up and people were baffled why it started to go up.
Now it starts to go down, and maybe after three months people will wake up
and scratch their heads and say now, we know why it started to go down,
because maybe there is geopolitical problems, maybe the Middle East blows up,
maybe the economy is horrible."
Mark O’Byrne
Goldcore
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