Gold is cheap to buy at $1,100/oz: Marc Faber

[bobbyw24]

SINGAPORE (Commodity Online): Global investing guru and publisher of the famous Gloom, Boom and Doom report Marc Faber says gold is cheap at $1,100 per ounce and it will be prudent if investors buy the yellow metal at this rate so that they can reap rich dividends in 2010.

In his first New Year comment on the price of gold, dollar and commodities investing, Faber said that the most interesting currency that people should invest now is gold as the US dollar is on a bearish run.

”Gold remains the best bet as a currency these days because of the fact that the yellow metal supply is extremely limited. Gold at the current price of $1,110 per ounce is less expensive than it was sold for less than $300 per ounce years back,” Faber said batting for the bullish run that the yellow metal is in during 2010.

Faber explained that gold price should be treated in the same way that a company’s stock is being treated by investors. “A company’s stock could be less expensive at $100 than when it was selling for $10, because earnings growth has outpaced the appreciation of the shares and therefore its P/E has declined, gold could be cheaper at the current price than when it was at less than $300 because of the explosion of foreign exchange reserves in the world, zero interest rates, the huge debt overhang, and the expectation of further money printing,” he said.

According to Faber, global reserves of gold have grown from about $1 trillion in 1995 to over $7 trillion.

”Therefore, the share of gold in the world’s official reserves has declined from 32.7 per cent in 1989 to a current record low of 10.3 per cent,” he pointed out.

Faber said that he is still puzzled by the deflationists, who cannot understand that the explosion in foreign exchange reserves over the last 15 years is a symptom of a massive monetary inflation. “Ergo, I could argue that gold is now actually less expensive than when it sold for around $300 per ounce,” he said.

http://www.commodityonline.com/news/...24401-3-1.html

[tmosley]

The market agrees, as gold is up $22 this morning.

[bobbyw24]

2) Gold will reach $2000 per ounce ($64.30 per goldgram) some time during 2010. Gold will not fall back below $1000. In fact, it is likely that a floor has been put under the market around $1050, the price at which India made its recent gold purchase from the IMF, though I don’t expect gold to fall below $1080. Like 2009, the low point for gold will probably occur early in this year’s first quarter.

There will be two forces driving gold higher. The first will be the continuing purchases of government paper by the Federal Reserve as the dollar moves ever closer hyperinflation. The second will be the growing demand for physical metal in preference to paper-gold.

In this regard, an important tipping point occurred in July when Greenlight (a major US-based hedge fund whose decisions are widely followed) announced that it was converting its large position in GLD (the big NYSE-listed gold ETF) into physical metal. Greenlight's decision was a wake-up call for investors and asset managers who began to study Greenlight's decision.

These investors and asset managers are now realizing that there is a fundamental difference between owning ‘physical gold’ and ‘paper gold’ in its different forms (ETFs are one of those paper forms). With paper gold you do not own gold. You only own a derivative that gives you exposure to the gold price, and this exposure comes with counterparty risk. Paper gold is a financial asset. Physical gold of course is a tangible asset and therefore does not have counterparty risk.

Also, these investors and asset managers are realizing that the annual carrying cost of ETFs is considerably higher than owning physical metal. For example, the annual management fee, administrative costs, shareholder reporting, etc. of GLD is in the aggregate about 3-times more expensive than owning physical gold in GoldMoney. But here is the key point that the market is only now starting to understand.

There exists a huge amount of paper gold outstanding relative to the available stock of physical gold at these prices. Therefore, to keep supply and demand in the gold market in balance as the demand for physical metal rises, gold's price has to rise in order to entice present holders of physical metal to sell and hold some national currency instead. After all, physical gold cannot be ‘printed’ by central banks to satisfy the demand for physical metal.

So how high does the gold price have to rise? My sense of it is that this scramble for physical metal could lead to a vicious short squeeze. Regardless whether or not one occurs, the demand for physical metal won't abate until gold hits at least $2000, which I expect will happen some time in 2010. A huge short squeeze could send gold to that price in a matter of weeks. Otherwise, a continuous demand for physical metal will put gold in a steady climb throughout the year that sends it to $2000 by year-end.

2) The gold/silver ratio will drop to 45, and perhaps make a new multi-year low around 40. If gold hits $2000 and the ratio reaches 45, then silver will be $44.44 per ounce. A ratio at 40 would put silver at $50 with gold at $2000. I mention this $50 target on purpose.

Silver will eventually exceed its $50 per ounce all-time record achieved in January 1980. Will it happen in 2010? It is I think only a 20% probability, but that is high enough for me to mention it. We need to start thinking about silver hurdling above $50. If it doesn’t happen in 2010, this important event – which is unimaginable to many – will I expect happen in 2011.

The major driving force behind silver will be – like gold – the demand for physical metal. The probability of a short squeeze in silver sometime in 2010 is higher than it is for gold. My guess is that a silver short squeeze is at least a 33% probability.

http://www.fgmr.com/january-2-2010-o...-for-2010.html

[hazek]

I'm super happy I bought 300g the day before Christmas.

[dimaniak]

YouTube - Crisis Watch - Banking and Gold market break down ahead ?