Roubini Doesn’t Like Gold, Unless We’re Headed for “Armageddon”
October 26th, 2009Via: Yahoo Finance:
Nouriel Roubini believes that a “wall of liquidity” is chasing all kinds of assets, yet once the economy disappoints expectations, it will all come crashing down.
Yet for Dr. Doom, gold isn’t the answer.
According to him, despite the temporarily asset bubbles right now, we’re still in a deflationary world and we’ll realize it soon enough once growth stagnates and all kinds of inflated asset categories come falling down.
IndexUniverse: Roubini: I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.
The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.
Roubini is beginning to lose more than a little of his luster as a market prognosticator. Like most economists, he doesn’t really understand gold’s function at all. Roubini gives away his affinity for Keynes, “Barbarous relic” with his dismissive and wrongheaded attitude towards gold.
Gold is a life buoy in a very chaotic global financial sea. Inflation or deflation, which are both occurring presently, and will for some time, are beside the point. The general disintegration of finance and economies on a global scale is the point. And that is a process that is in its early days.
It’s getting close to point where I’ll be dumping all but 25% of my gold and silver. I’ll buy it back later along with about a 1/3rd more.
I got to say that Peter Schiff, Jim Rodgers, and the rest of the gang seem more like car salesmen trying to get what they can. I think Robert Pretcher is right that the dollar is going to come back with a vengeance. It’s been completely oversold.
Its disapointing to read this from Roubini. But after all, he is an economist – not an investment advisor.
I disagree with many of the things Roubini has said here. Gasoline has gone up 20 cents per more in a week here in the northeast US. No reason, no rhyme. There is not deflation in gasoline. And the price increase will continue. When the dollar goes down in value, there is ALWAYS an increase in gasoline prices. That is part and parcel of depending on imports of foreign oil. The Middle East, through the major oil companies, have always extracted a pound of flesh from the US consumer re gasoline when the value of the dollar goes down.
At end of the article Roubini mentions a Depression in 3 or 4 years. What is happening now in his mind? I wonder whether 20 percent unemployment will be good enough for him to call this a depression
Gold is good. I agree with edwardo. Roubini doesn’t understand gold’s function. IMHO if you don’t have the cash to buy and/or run your own homestead and earn your living making your income from a job where someone else pays you for your work shuffling paper (a job is a good thing no derogitory meant here) gold is security. But that’s just me, one of those gosh darn goldbugs.
i think it is worthwhile trying to parse what Prof. Roubini is saying. Let me paraphrase:
1. there is a wall of liquidity driving up asset prices to unrealistic levels
2. asset prices will crater when the economy remains depressed
3. there is an excess of productive capacity and labour in developed economies, and demand is depressed, meaning inflation is not possible
4. Deflation is the overriding monetary trend
5. Gold is a potential hedge for inflation but not deflation
6. In a full-blown “great depression” gold is an effective store of value
7. A full-blown depression has been avoided for the time being
8. Three or four years down the track, anything could happen.
anyway, this is my interpretation of what he is saying:
1. handing unlimited free money to overgrown financial institutions–whose underlying businesses are nonviable–does not cause inflation, just temporary asset bubbles.
2. slack capacity in developed economies will inevitably lead to deflation.
3. gold is a sideshow in this environment.
4. there is no depression BUT if there were one, gold might be useful to hold.
OK. is he right? mmm. of course he is in a narrow sense. But. the “depression avoided” riff is dodgy at best. the jury is still out, imho. for another year to 18 months, i reckon. what i think he is saying is, “i cannot possibly comment on extreme scenarios”. in other words, the total collapse of the dollar, in the medium term. he won’t go there and he implies the gold bugs are talking it up for their own benefit. fair enough. but what he doesn’t say is as important as what he does say, imo.
to take gold seriously, you need to come up with arguments as to why the dollar is burnt toast. and very few professional economists are willing to go there in their public utterances.