Marc Faber: No bubble in gold

Marc Faber, renowned fund manager and editor of the Gloom, Boom & Doom report, said on Monday that there is no bubble in the price of gold. Faber explained that at $1,900 per troy ounce gold was still undervalued, underowned and cheap. Given the reaction of equity markets to the end of QE2, investors have been praying and hoping that Ben Bernanke would soon announce another round of money printing.

Data on the US economy continues to show weakness. Vice president Joe Biden recently called on policy makers for a new stimulus package to stave off the economy’s slide into a double dip. President Barack Obama is expected to present new job creation plans in the coming weeks. Last Friday´s employment report showed few new jobs created in August. US unemployment rate remains at 9.1%.

Not only the Fed, but also the ECB and the People’s Bank of China have been injecting liquidity and printing money generously. In China, inflation has soared to record levels in recent months – one of the reasons for Chinese investors to shift their capital to safe havens like gold or silver. In Europe, the ECB recently announced purchases of Italian and Spanish government bonds. According to an ECB statement, the decision had been necessary to reduce sharply rising interest rate spreads between Italian and Spanish government bonds and German bund. The so-called “risk premium” that bond issuing countries must pay investors to attract them to their bonds.

The ECB was unable to resist political pressure to bail out less solvent eurozone members. The euro traded lower against the swiss franc earlier this week, until of course the SNB decided to peg them together. The British pound sterling has been similarly weak. According to Faber rising gold prices are a sign of major trade and currency imbalances.  Sovereign debt, central bank policy and risk all continue to support the price of gold and as long as these fundamental drivers remain, talk of bubbles will be unfounded.