December 21st, 2009 by Dian L. Chu

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The following are highlights from part two of the three-part interview Dr. Marc Faber did on Indian television channel, December 19, 2009.

Dollar & Gold

The dollar has been weak, but in Europe, the ECB is also a money printer.  The euro has many problems as well as other currencies that have strenthened against the dollar.  This is one factor supporting the price of gold even though dollar has rallied.

Globally, we have about $7 trillion in foreign exchange reserves, up from one trillion in 1996, but the price of gold has not gone up seven times over that period of time.

Asian central banks, including Japan, hold 70% of the world’s foreign exchange reserve with less than 2% of their reserves in gold.  So, a lot of central banks will likely follow the Reserve Bank of India shifting some money into gold further supporting gold.

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Key Bullish Commodities

Faber remains “very positive” about sugar, but believes there are two commodities right now that stand out in terms of being “incredibly depressed”:

1. Wheat - at its 200 years low, real inflation adjusted
2. Natural gas - “very cheap” right now

Though it is not very easy for individual investors to play in these commodities, Faber recommends essentially looking at all agriculture commodities. which have all come down, but not rallied as much as industrial commodities, such as copper and oil.

Best Way to Invest in India

The banks in the West are mostly over-leveraged with huge exposure in the residential and commercial real estate sectors.  In contrast, the Indian banks are “relatively sound”, as they did not play in the speculative CDO or the mortgage backed securities markets. With 700 million population and growing, India represents a hugh opportunity for the well-run banks.

Faber likes real estate in emerging economies, Asia and particularly, India. With an accelerated nation urbanization, and far less leverage, Faber sees a big opportunity in Indian real estate sector in the long run.

Note: Bloomberg reported that in a separate interview, Faber indicated Indian stocks could have a correction of 20% to 30% due to valuation.  Nevertheless, he remains upbeat about the long-term potential for India “because of the domestic consumption play.”  Banks, infrastructure and mining stocks are among sectors he favors.

Part 1:

Part 2:

Part 3:

Source: Indian TV via YouTube (here, here and here), December 19, 2009.

Read more from the author/contributor here.

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