Think Precious Metals Prices Are A Bubble? Think Again.

Each time the two monetary metals reach new highs, calls for the end of the bull market in gold and silver come quickly and frequently. At $500, $850, and ever since gold first cracked $1,000 per Troy ounce in March 2008, the gold price remained the focus of those paid to report a popular view among those firmly entrenched in a fiat paper system that’s rewarded them handsomely for two generations. Those unencumbered by a financial system—a system that pays its employees “more than four times the average salary in the rest of the economy,” economist Paul Krugman wrote in 2008—make a living by developing a reputation for accurately appraising the current state of the vilified gold and silver market. Otherwise, these unleashed analysts and money managers will no longer retain their flocks and fortunes. One such tell-it-like-it-is investment manager is the publisher and editor of the Gloom Boom Doom Report, Marc Faber—who, as a side matter, says that the choice for the name of his report, Gloom Boom Doom, came about from his observations of changing investor sentiment during complete market cycles. So, is it Gloom, Boom or Doom for the precious metals? Faber rejects the notion of a precious metals market soon entering a “Doom” stage. “If it [gold] were a bubble a lot of people would have gold. The whole world would be trading gold 24 hours a day,” he told CNBC’s Joe Kernen. “But I don’t think it’s really a bubble. I think gold is maybe cheaper today than it was in 1999, when it was $252.” The rise in the gold price (but more spectacularly, in the silver price) has been primarily driven by the Fed’s unprecedented easy-money policies, first, following the popping of the NASDAQ bubble in 2000, then again, much higher in price following the collapse of the financial system, starting in March 2008, with the fall of Wall Street broker-deal/investment banking firm Bear Stearns. Not unlike most global pricing, the world’s traditional monetary metals are denominated in U.S. dollars, so a decline in the dollar’s relative value to world supply of precious metals lifts the price of gold and silver in dollar terms. The future of the gold price is bright as long as Fed chairman Ben Bernanke continues a policy of negative real interest rates—when compared, that is, with the rising rate in living costs, Faber has repeatedly stated. Even if the Fed followed last week’s European Central Bank’s (ECB) quarter-point interest rate hike, the competition for dollars between paper assets and tangible assets won’t tip the tide among investors in favor of paper assets, according to Faber. “One day they [the Fed] will increase it [federal funds] by a quarter percent. But what does it mean when commodity prices are going through the roof, energy prices are going up, health care costs are going up, insurance premiums are going up?” he said. Therefore, Faber posits that cash and debt will lose value relative to “commodities, real estate, art, collectibles and so forth, anything that essentially cannot be multiplied at the same rate as paper money, that is subject to the printing presses of Mr. Bernanke.”