Wall Street Bear Predicts Sharp Drop For Gold

In financial circles Marc Faber is known as “Dr. Doom,” partly for his newsletter, the “Gloom, Boom and Doom Report,” as well as his famously bearish outlook.

Faber was well in front of most analysts on his predictions of crashing housing and stock markets, and now he's warning gold prices could be set for a significant spill. In an interview on cable business channel CNBC today, Faber said gold got ahead of itself when nervous investors pushed its price up over $1,900 an ounce.

"We're now close to bottoming at $1,500, and if that doesn't hold it could bottom to between $1,100-$1,200," Faber told CNBC.

Gold prices are down about three percent in today's trading, at about $1,600 an ounce. Faber said he wouldn't be surprised to see a 40 percent correction when all is said in done, mainly because of severe weakness in the global economy.

Gold prices have been climbing for several years, but picked up momentum this year as more and more consumers – frightened about the prospects for the future – decided to put some or all of their assets in gold. While gold stocks and ETF's have gained ground in recent weeks, the demand for physical gold, which often carries a still markup, has also increased.

According to Faber, the big drop probably won't happen right away. He thinks it will be a long-term phenomenon. In fact, the noted bear thinks both the gold and stock markets will enjoy a rebound this week as traders realize that last week's heavy selling – which gave Wall Street its worst week since 2008 – was overdone.

What does Faber see as the reason for his long-term pessimistic outlook? It has nothing to do with Europe and whether or not Greece will default. While attention has been riveted to that drama, he says China's economy has been quietly slowing down.