Marc Faber Thinks Gold May Drop to $1100

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Sep 27, 2011
Marc Faber was interviewed by CNBC yesterday morning and he expressed his short term concerns about the gold sell-off.

Over the last week, gold and silver have seen the sharpest drop in 30 years.

Faber said that he expects that gold could hit $1100 in the coming months. Near term he thought that gold was oversold. "Both equity markets and gold markets have become very oversold, and I think a rebound is occurring," Faber said. "Following this rebound, which I expect to get underway this week, there will be a longer slowdown."

Faber also said that he is going to look at adding to his gold position over the "next few days."

The three most likely causes of the sell-off are that:

  1. A major hedge fund was liquidating. John Paulson’s biggest position is in the GLD ETF. Paulson’s fund has been getting hammered in large positions in U.S. financials and Hewlett Packard. His fund is down over 20% this year and it’s possible that redemption notices are being fulfilled as we speak.
  2. European central banks were selling gold to recapitalize European banks. It has been widely reported that as many as nine banks need to be recapitalized. It is possible that various central banks might have been major sellers in order to raise capital for this. However, sovereign selling would not explain the rout in silver prices because silver is not widely held by central banks.
  3. The CME was going to hike gold and silver margin rates, yet again. This would seem to be a strange move because speculation does not appear to be feverish anymore.
Faber did not think that the sell-off was the end of the gold bull market. "I don't think the long-term trend is broken," Faber commented.

Marc Faber has been a long time gold bull since the tech stock bubble. He generally recommends that investors have 25% in physical gold outside of the U.S, 25% in stocks, 25% in real estate and 25% in cash.