Marc Faber, author of the Gloom, Boom & Doom Report, urged investment professionals at a recent Chicago conference that 25 percent of a portfolio should be dedicated to gold.
The Chicago Tribune
reported that Faber touted gold as “protection from a dangerous combination of tremendous government debt and massive bond-buying by central banks globally trying to fight off recession with near-zero interest rates.”
Faber said rates are so low that investors can't make money in bonds so they keep buying stocks even though the prices are inflated. Central banks want rising stock prices to make people feel wealthy and therefore spend their money, but the end result is income inequality and investor resentment, he said.
"Young adults will earn less than their parents and die with less than their parents," Faber said, explaining that these parents — when young — bought U.S. Treasury bonds paying 7 percent rather than bonds paying nothing today. They bought homes that appreciated greatly, the Tribune explained. Now, "young people don't have money to buy condos and houses," so they overpay on rent and are left without money to invest or spend.
Faber said that is all the fault of central banks. "It's ludicrous to think that slashing rates will get people to spend." When rates are low, you feel more financially insecure even though your savings earn nothing. "You save more," Faber said.
He sees value in the stocks of companies that mine gold and other precious metals. Agricultural commodities are also cheap, but not agricultural stocks, he said.
Meanwhile, gold declined a third time in four sessions Monday amid rising speculation that the Federal Reserve will raise U.S. interest rates this year.
Fed policy makers meet Tuesday and Wednesday. Signs of strength in the U.S. economy have prompted traders to increase odds of a rate increase by year-end to 49 percent, from 41 percent a week ago and about 12 percent at the beginning of the month. Higher rates are typically negative for gold because the metal doesn’t pay interest.
Gold’s 25 percent rally in the first half of this year has sputtered in July on Fed rate concerns and a stronger dollar, which cut demand for bullion as an alternative asset.
“The chatter about an interest-rate hike is working its way back into the system, and that’s why gold has been down,“ Phil Streible, a senior market strategist at RJO Futures in Chicago, told Bloomberg.
Gold futures for December delivery dropped 0.3 percent to settle at $1,327.20 an ounce late Monday on the Comex in New York.
(Newsmax wire services contributed to this report).
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