An apology to Dr Marc Faber

This is the title I have given to a chapter in my new book examining the insights and predictions of arguably the most consistent and cerebral gold bug of the twenty-first century. I hope he will indulge my inadequate analysis.

Dr. Marc Faber, the original Dr. Doom before Professor Roubini was recently accorded this moniker, first highlighted gold stocks as an asset class in his column on www.ameinfo.com in February 2001. At the time it was an incredibly radical call.

He said: ‘today I should like to advocate the purchase of a group of stocks, which has over the last twenty years been the worst under-performer. This group consists of gold mining companies… with a combined market capitalization of only $30 billion… a bargain when you consider… Amazon.com was valued at its peak at $35 billion!’

Golden wisdom

The same article laid out the fundamental reasons for buying gold in 2001: demand ahead of supply; large gold short positions; and historically cheap in relation to the Dow Jones Index. He blamed ‘a concerted effort by the US Treasury, the Fed and a number of banks… through active manipulation’ for the low gold price, and added: ‘Should the gold market rally in earnest, the gigantic short positions could never be covered’.

He was always will ahead of the pack. Even his investment classic ‘Tomorrow’s Gold’ published in December 2002 was a strong allusion to the future he saw for the yellow metal.

Almost five years from his first prediction and Dr. Faber had been proven spectacularly correct. In December 2005 he explained in his AME Info column that the Dow-to-Gold ratio had shifted from 45 in 2000 to 20, that is to say ‘it only takes 20 ounces of gold to buy one Dow Jones Index’.

DJI:Gold

But this still left a great deal of room for the future of gold. Dr. Faber then predicted: ‘I would expect this out-performance to continue for the next few years until ‘gold currency’ holders will be able to buy one Dow Jones with just one ounce of gold’. A year later in October 2006 he wrote: ‘I continue to believe that over the next few years gold and silver will significantly outperform US financial assets… We might even see a nice little crash’.

Dr. Faber remains undaunted by gold’s recent fall from its March top and as recently as in the September edition of ‘The Gloom, Boom & Doom Report’ he reported: ‘Personally I hold gold as an insurance against a total collapse of the financial system and a further eventual depreciation in the purchasing power of all paper monies’.

That might sound a bit hubristic in the face of a strengthening dollar. But then who was the one forecaster in the world to advocate a long dollar strategy earlier this year – to wild derision from many quarters, yes none other than Dr Marc Faber. But will his long-term confidence in the yellow metal be proven correct? Let us just say that following the advice of this sage investor has served me well so far this century.

For an analysis of the many remarkable predictions of Dr. Marc Faber in the 2000s please click on this link to order a copy of my new book ‘Opportunity Dubai’ which also reviews many investment options from a Middle East perspective:
Order my book online from this link