Faber on Gold
Posted by WARREN MOSLER on November 12th, 2009
He may be right, but for the wrong reason.
Central Banks buying securities and growing their portfolios of financial assets, aka ‘quantitative easing, has nothing to do with inflation or aggregate demand.
However, direct Central Bank purchase of gold do amount to what I call ‘off balance sheet deficit spending’ which does support the price of whatever they buy and can go on indefinitely as a function of political will:
Gold Price Won’t Drop Below $1,000 an Ounce Again, Faber Says
By Zijing Wu
Nov. 11 (Bloomberg) — Gold won’t fall below $1,000 an ounce again after rising 27 percent this year to a record as central banks print money to help fund budget deficits, said Marc Faber, publisher of the Gloom, Boom & Doom report.
The precious metal rose to all-time highs in New York and London today as the dollar weakened. The Dollar Index, a gauge of value against six other currencies, has declined 7.9 percent this year and today fell to a 15-month low. News last week of bullion purchases by the Indian and Sri Lankan governments raised speculation that other countries would follow suit.
“We will not see less than the $1,000 level again,†Faber said at a conference today in London. “Central banks are all the same. They are printers. Gold is maybe cheaper today than in 2001, given the interest rates. You have to own physical gold.â€
China will keep buying resources including gold, he said.
“Its demand for commodities will go up and up and up,†he added. “Emerging economies will grow at the fastest pace.â€
In contrast, Western countries will be lucky to avoid economic contraction, while the Federal Reserve will maintain interest rates near zero percent, he said.
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November 14th, 2009 at 1:29 pm
Does direct central bank purchase of foreign exchange (fx reserve accumulation) also amount to “off-balance sheet deficit spending”?
If India uses dollar reserves instead of rupees to purchase gold, is it just a portfolio shift with no effect on net deficit spending?
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November 14th, 2009 at 3:51 pm
yes, yes. though spending any savings on real goods and services does alter agg demand
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