HAI: In light of all these issues, what’s your view on gold? Is the current rebound in prices sustainable?
Faber: We have had a meaningful correction. From $1,921 in September 2011 to less than $1,200 at the bottom is a fairly large correction. But in longer-term bull markets, these kinds of corrections do occur. We had a 40-50 percent correction in 1987 in equity markets. But the bull market lasted until the year 2000.
Looking at the fundamentals, looking at how debt will continue to increase and how central banks will continue their monetization not only in the U.S. but on a worldwide scale, I assume the price of gold will trend higher. Most likely we’ve seen the lows below $1,200.
HAI: Will gold revisit its highs?
Faber: Eventually we will be over $1,921. The question is, Will it be this year or in five years? That I don’t know. But as I have argued repeatedly, I think that part of your assets should be held in physical gold. I emphasize physical gold.
HAI: You don’t like the ETFs—the GLDs of the world?
Faber: I don’t. There are a lot of question marks about the paper market. I would imagine that more and more money will flow into the physical metal.
HAI: Finally, what’s going on with China? Has the government been successful in the ongoing transition to slower growth?
Faber: In my view, the economy in China is much weaker than it is generally perceived and the problems are larger than generally perceived. The stock market in China has been very weak since 2006 and has underperformed just about any other market over that period of time. In general, I would be very careful to invest now in emerging economies, especially under the condition that we have had declining trade and current account surpluses in most emerging economies.
In the last 20 years, we’ve grown in China by approximately 8-12 percent per year. Going forward, China will be lucky to grow at something like 5 to 7 percent per annum. There may be years when it only grows at 3 to 4 percent, or not at all.