Friday, November 4, 2011

Marc Faber s 'Rule of 25': Allocate 25% each for gold equities

NEW YORK (Commodity Online): Marc Faber believes that the best thing an investor can do in the current economic crisis is to follow his Rule of 25. Unprecedented levels of borrowing will leave governments with no choice but to monetize their debts – in effect printing money – according to Marc Faber, publisher of the Gloom Boom & Doom Report.


The Rule of 25


“The best thing an individual investor can do right now is to hold 25% of his assets in equities, 25% in real estate, 25% in gold, and 25% in cash”, said Faber last week. “If equities, real estate, or Gold drop another 10% to 20%, put more cash in.”


Although he remains bullish on Gold Bullion, Faber warned last week that “we are still in a correction mode” following the start of September when the Gold Price “peaked out” at $1920 per ounce.


“Everybody should accumulate some gold over time. I’m not saying that today is the best buying point…[but] I would recommend people to buy every month some gold forever.”


Earlier this month, Faber was asked if he believes Gold Bullion is “The Ultimate Ponzi Scheme”.


Gold Bullion “is not a liability of someone else, you really own it. Its quantity cannot be increased at the same rate as you can print money", replied Faber.


Faber added that he believes the US Dollar will be substantially weakened as the US authorities respond to rising public debt levels.


“We went into this crisis with an unprecedented debt level. If you compare, for instance, the depression years, in the depression years we didn’t have credit cards, and we didn’t have unfunded liabilities from Social Security, from Medicare, from Medicaid"


“These are all debts that will come due, that will have to be paid by the government…in ten years’ time I would estimate that between 30% to 50% of tax revenues will be spent on the interest payments on the government debt and that will then prove to be a huge problem and necessitate the monetization, essentially, of the debt and that will Lead to a weak Dollar". Faber has previously urged US investors to store their Gold Bullion overseas.


Fund managers piling on the gold


In the UK, a number of fund managers are maintaining an exposure to Gold Bullion as a form of insurance, according to a Citywire report.


For example, Troy Asset Management’s Trojan Fund – which features as one of four funds Citywire cites as having “the best record of risk-adjusted returns” – has an 18% allocation to Gold Bullion.


“Gold has always had intrinsic value whereas paper currencies have come and gone, like blossom in the spring,” said Trojan’s Sebastian Lyon back in June this year. “Back in 1919, a £20 note could have been exchanged for 20 gold sovereigns. Now those sovereigns are worth £5,000. You would have been a lot better holding your money in gold than in £20 notes.”


Gold Bullion is “the best insurance policy we can invest in at the moment,” adds Jupiter Assset Management’s Algy Smith Maxwell, whose Merlin Balanced Portfolio has a 7% allocation to gold. “Gold is a significant exposure as we believe there are enough worries in the world for it to continue to be a safe haven.”


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