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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: ForYourEyesOnly who wrote (35500)	6/17/1999 9:02:00 PM
From: FESHBACH_DISCIPLE	Respond to of 116764

Gold turns By Marc Faber In investing as in war, the victor is the one who incurs fewer casualties. I believe that starting with the summer of 1998 the winners of the investment game will be investors who manage to keep their capital intact or lose less than other market participants. To be victorious will mean butting heads with the crowd. Up to two months ago the investment community was bullish about U.S. and continental European equities as well as the U.S. dollar but bearish about Asian stocks and extremely negative about the yen, which was expected to decline to 165 to the dollar. Gold, widely believed to have lost its "refuge of last resort" status, had been totally discredited. So what happened? Most European shares have fallen by 50% in just two months, the U.S. stock market got hammered, the yen has surged from close to 148 to less than 120 to the dollar, and Asian equities have outperformed U.S. and European stocks in the third quarter (and Latin American markets since the beginning of the year). Gold? It's up from a low of $271 an ounce to around $300 an ounce. Back in April I wrote that never before in history did it take more ounces of gold to buy one Dow Jones industrial average share than at that time. In 1980 you could have purchased one Dow Jones share with 1 ounce of gold; at the stock market's peak in July 1998 it took more than 30 ounces to buy one Dow share. But it now appears that the powerful surge of equities versus gold has been broken (see chart). These excesses could develop only because of massive credit inflation and accommodating monetary policies. Has the time finally come when investors should trade equities for gold? Consider this: Government officials, the IMF and economists all tell us that the present crisis came about as a result of evil hedge funds, crony capitalism, insufficient transparency in emerging markets, industrial overcapacity, real estate and financial asset bubbles in Asia, inordinate debt growth in countries such as South Korea and so on. But these aren't really causes. They're symptoms of far wider problems, namely, excessive and uncontrolled credit growth that far outpaced economic growth rates and reckless lending and trading by financial institutions with huge appetites for risk rather than prudence. These excesses could develop only because of massive credit inflation and accommodating monetary policies. To get to the root of its financial problems, the world does not require capital controls in Malaysia, stock market interventions in Hong Kong, lower interest rates in Japan, bailouts of entire countries and of hedge funds. What is needed is a new monetary system that has built-in stabilizers and imposes discipline on the financial markets. I believe that the world will eventually be forced to revert to some kind of a gold standard in which credit expansion and cross-border money flows are controlled by gold reserves, not by central banks, commercial banks, insurance companies, the treasury departments of multinational corporations and a host of other highly leveraged financial institutions. Governments will not implement such a new monetary system anytime soon. Monetary discipline would significantly reduce the power of central bankers and finance ministers. But once the crisis becomes more acute—as "deleveraging" intensifies deflationary forces—a massive revaluation of gold to around $1,000 an ounce and the implementation of a gold standard will, in my opinion, come under active consideration by reputable people. Golden opportunity? It may be time to trade in your equities for gold. Impossible? People used to say that about currency boards. But as the costs of currency instability have compounded, many card-carrying economists are now big supporters of the currency board idea. The same could very well happen with gold. For now, gold is still the ultimate contrarian play. In late September I was at a Putnam Institutional Investors' conference in Washington. The audience of about 100 people was asked to choose the best performing asset over the next twelve months. About two thirds voted for U.S. equities. I chose gold. I was alone. That confirms my belief that gold is heading higher. Don't forget that the strongest bull markets emerge in assets where there is the least participation—and that the ice is most likely to break when the greatest number of people are skating on it. If you buy gold, should you buy the physical metal or gold shares? Personally, I prefer gold bullion stashed in a safe deposit box beyond the reach of tax authorities. If the gold standard is reintroduced and the metal soars in value, expect some excess profit taxes to be implemented at the same time.