In early morning trading in Europe today, publisher of the Gloom Boom Doom Report Marc Faber gave CNBC his latest take on a plunging gold market.
“We overshot on the upside when we went over $1,900,” he told CNBC’s Steve Sedgwick.
“We’re now close to bottoming at $1,500, and if that doesn’t hold it could bottom to between $1,100-1,200.”
So far, spot on, as Faber’s call for gold to fall to $1,500-1,600 at a conference in Mumbai a little more than a week ago has materialized. Faber said he holds 25% of his portfolio in gold.
Spot gold traded as low as $1,536 in Asia, Monday. With less than two hours before the open in NY, gold is $100 off its low to trade at $1,636. Silver, too, is up more than 10% off its low of $26.05.
Faber’s next level of support, between $1,100 and 1,200, coincides with gold’s 60-month moving average—and level that could be tested if the global financial crisis turns profoundly more ugly than the already terrible expectations implied by the colossal move into U.S. dollars and out of emerging market currencies during the past two weeks.
The Brazil real and Mexican peso, for example, have gotten clobbered since mid-September, registering staggering 22 and 16% total declines against the dollar in the past 5-6 weeks.
Though not nearly as dramatic, Asian currencies, too, have been hit with 6% to 10% declines against the dollar during the same time period.
Currencies guru John Taylor of FX Concepts nailed that prediction in July, when he told Bloomberg that the dollar was primed for a very strong rally against emerging markets currencies in the fall season.
Incidentally, Taylor also predicted in July that gold would reach $1,900 per ounce. Then, he said, the yellow metal would crash to Faber’s most recent pessimistic call of approximately $1,000 mark before gold resumes its bull market ways.
However, for now, Faber suggests the bounce in gold may begin as early as Wednesday. And, at that time, he may turn into a buyer again.
“Both equity markets and gold markets have become very oversold,” he said, “and I think a rebound is occurring.”
Unlike many analysts, who point to Greece as the catalyst for the sell off in every asset except U.S. Treasuries, Faber thinks heightened fears of a meaningful slowdown in China could be behind the global mass exodus out of assets associated with the Asia growth story.
China, he believes, has “overcapacities” in some areas of its economy, which were brought about, partially, by Beijing’s rapidly increased capital spending programs following the collapse of Lehman Brother on Sept. 15, 2008.
“Asian markets are weak, Asian currencies are weak and economically sensitive stocks are weak because there’s a more meaningful slowdown in China,” he said.
“You have a capital goods level where capital spending increases dramatically and companies keep spending to a high level, but because of the acceleration, it can lead to recession simply by the economy growing at a steady rate, and I think we are at this point in China.”
Though, Faber didn’t say so, specifically, during the CNBC interview, he may be looking to the industrial metals price action for clues to where gold, in the short term, would go from here.