Gold and Silver's Daily Review for 20th Sept 2010
HONG KONG (MarketWatch) – Gold's rise to a fresh record Friday won endorsement from financial advisor Marc Faber, who said the rally in bullion prices didn't appear excessive in view of the inflationary backdrop and ongoing bias of the world's monetary authorities towards weak currencies.
Faber, known as Dr. Doom for his bearish call on U.S. stocks shortly before the crash of October 1987, said he would continue to be a buyer of bullion at current levels.
"Given all the unfunded liabilities and the money printing in the world and the size of the financial assets in the world, I don't think we are in a bubble," Faber told a CLSA Investors' Forum 2010 in Hong Kong.
Faber advised investors to build exposure to bullion via monthly purchases and avoid sinking too large a share of their total wealth into the metal, as violent pullbacks can be expected.
"We can have one day a correction of 20 to 30%," Faber said.
He noted the 1970s bull market in gold saw prices plunge 50%,from $195 to $105 an ounce, before then rising to more than $800 an ounce.
Faber cautioned physical gold holding in the U.S. and Switzerland were subject to the possibility – considered remote by mainstream observers – of forced sales to the government. Precious metals investments held in the Hong Kong or Singapore banks were safer, as these jurisdictions, influenced by China, were likely to resist U.S. political pressure on individual investors, Faber said.
Faber also said he was upbeat on Japanese stocks, reiterating views he expressed in February.
The prolonged bear market that has hammered Japan's main benchmark to a quarter of its peak level, stood out as a good contrarian bet, he said.
"It's a country that people have given up on," Faber said
The catalyst for a rally could from come a weakening yen, which in turn would weaken the attractiveness of the bond market and push investors to equities in the search for dividend yields.
"I think there is an opportunity, because compared to the bond yield Japanese stocks are inexpensive," Faber said.
Once again Asia dictated the direction of gold and silver today. The morning started over $1,280 and held that level to Fix in London at $1,280.25. We repeat that so long as the London Fix dominates the gold market physical demand will overrule all other gold markets. Asia's buying has nothing to do with anything other than Asian considerations. Ahead of New York, the price climbed two dollars.
What is of note is that the Afternoon Fix is usually lower than the morning Fix. The U.S. is usually present at the p.m. Fix. Over time it is evident that New York usually takes the gold price slightly lower. Later in New York's day it turns upward. We have no doubt that this picture will change in time as Asia asserts it dominance over gold and silver buying. With the main bullion banks operative in the Fixing, the overwhelming of the less enthusiastic U.S. influence in the gold market will not prove a major hurdle. Most U.S. demand is seen in the activities of the SPDR gold E.T.F., which has been lackluster since the gold price broke upwards.
We are developing the theme of the last article [Subscribers can access our archives] on "Developed World Demand & Supply of Gold" in the current issue of the Gold Forecaster, and writing "Will the Chinese Yuan rise – what of Chinese Gold Investors?" and "Will the Silver price de-couple from Gold" These will not be issued in full, if at all, to gold sites in general. To read these and other [for subscribers only] important pieces and to find out our mining share preferences and for our full range of weekly forecasts please subscribe through: – www.SilverForecaster.com or www.GoldForecaster.com for our newsletters.
Gold – Very Short-term
Gold is holding newly conquered ground today, so we expect a positive day for gold.
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Silver – Very Short-term
Silver too is holding new ground just below $21. Once gold starts to move, then expect silver to move with it. We expect a positive day for silver again.
Gold Price Drivers
We cannot emphasize enough that what we are witnessing in the global economy is the passing of the baton from the U.S. to China. The U.S. financial empire is waning and the Chinese economy is waxing. This will be a painful process with huge amounts of pain and disruption involved. The U.S. will show itself to be unwilling to pass the baton.
The growing confrontation between Japan and China may well be a prelude to a confrontation between the U.S. and China with currencies the focal point. This is gold positive!
Julian D.W. Phillips