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SINGAPORE: Marc Faber - the man commonly referred to as Dr Doom by the investment community – said that the real financial crisis has yet to come for the global economy.
Speaking at a conference in Singapore on Wednesday, he said there will be another big bust stemming from credit expansion.
Mr Faber, author of the Gloom, Boom & Doom Report and famed for his bearish and contrarian views, is bullish about commodities and gold.
Mr Faber said: "The crisis has not solved anything. On the contrary there is less transparency today than there was before. The government's balance sheet is expanding, and the abuses that have led to the one cause of the crisis have continued.
"I think eventually there will be a big bust and then the whole credit expansion will come to an end. But before that happens, they will print money, and they will grow into very high inflation rate, and the economy will not respond.
"The average family will be hurt by that, and then in order to distract the attention of the people, the governments will go to war. People ask me against whom? Well, they will invent an enemy."
Despite the gloom, Dr Faber is upbeat about commodities in the long term because of competition for natural resources.
"At some stage, somewhere in future, we will have a war - that you have to be prepared for. And during war times, commodities go up strongly," said Mr Faber.
"If you want to hedge against war, you don't want to own derivatives in UBS and AIG, but you have to own them physically, like farmland and agricultural commodities. That is something to consider for you as a personal safety and hedge. You have to own some commodities," he added.
Analysts generally agreed that gold is an attractive asset class for investments.
Daryl Guppy, CEO, Guppytraders.com said: "The strength of gold is in direct relation to weakness in US dollar. The weakness in US dollar is likely to continue. You see the dollar index heading down towards to 71 US cents is not a support level. It could in fact fall lower than that.
"So there is a probability of a sustained rallied increase in the price of gold - long-term uptrend. Gold is not driven by fundamental factors, not driven by demand; it is driven by our perceptions of US dollar and currency changes.
"If we are successful in developing a soft reserve currency which is what China is trying to do, then we will see some pressure come off the price of gold."
On Wednesday, gold prices surged to an all-time high near US$1,150 an ounce, boosted by the weak US dollar.
Mr Guppy added: "One of the key changes that took place in 2008 was the change in volatility in the market. Things go up and down a lot more than we would like to expect and what we call the stability of the trend.
"In other words, the trend looks like it is going up, then suddenly there is a major correction. We have to develop methods to deal with these shakeouts. Then if the market does recover, buy back into the market. Therefore we have to be much more active than we used to be."
Mr Guppy believes that the increasingly dynamic nature of the market will affect not just short-term speculators but long-term investors as well.
Mr Guppy said: "We cannot rely on long-term trends continuing to rise. The long-term investors, who parked their money in 2007, have a long long way to go before things break even.
"The lesson that came out of 2008 is that we cannot be complacent, that we must be active. Not necessarily active traders but active investors, so we must know at what point the trend has changed and we need to get out of that stock."
- CNA/sc
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