‘Gold Is Dirt Cheap,’ Says Investment Guru Marc Faber

The market’s volatility and the momentum behind precious metals is a consequence of current monetary policy, the investment guru believes. “I have argued for years that the Federal Reserve, with its artificially low interest rates, instead of creating monetary and economic stability, it has created more instability by creating the Nasdaq bubble, the housing bubble, the commodities bubble and now creating a giant government debt bubble,” Faber said.

As for the stock markets, he noted, they are likely to be range-bound in 2011 and highly volatile for the next few years.  “Markets, for the next few years, will go up and down at least 20-30% per annum and will not make much headway in real terms – in gold-adjusted and inflation-adjusted terms,” he said.

“Volatility is not the sign of a healthy market,” Faber said. “It is a consequence of zero interest rates.”

In terms of deflationist arguments, such as those made by Paul Krugman, Faber projected that the private-debt collapse and contraction will exceed the government debt creation and the S&P 500 stock index will collapse to 400. “I sympathize with that,” Faber said. “Thus, I say you should have about 25% of your money in stocks, 25% in real estate, 25% in gold and silver and 25% in cash.”