Nouriel Roubini likely to be as right on gold prices as he was on the stock market crash, i.e. totally wrong

Posted on 04 June 2013 with 2 comments from readers

Rewind back to the dark days of 2009 when the S&P touched its lowest point in March. Stocks started to rebound and then one famous commentator stood up to call another stock market crash. Step forward Dr. Nouriel Roubini who got the subprime debacle spectacularly right and the subsequent stock market rally spectactularly wrong. That was almost four years ago.

He is making the same mistake with gold now. Perhaps in several years time when gold passes $5,000 an ounce there will be a spectacular price collapse or maybe not? But now? The big shift from paper assets to real assets has not even gotten going.

This may not be the trend always. But we have to keep monitoring such changes to ensure our investments are safe. People started using auto trading robots to invest on their behalf. We can see people mentioning “go to my site” in many social media networking platforms to express their opinion in their personal blogs.

Six points

Dr. Roubini makes six points why gold is going to $1,000 an ounce. Let us refute each one in turn:

1. Margin calls will force a gold sell-off in a crisis as in 2008-9. Yes but we have already seen a correction in precious metal prices (unlike 2008-9), and don’t forget that precious metals showed the fastest recovery of any asset class post 2008-9 and went on to new highs very quickly. It may not be different this time.

2. Inflation has stayed low. Tell that to the Chinese struggling with rising food prices. That’s why we had the Arab Spring. What does it cost to put gas in the tank these days? Official inflation data stinks. Professor Roubini ought to know this is nonsense.

3. Gold earns no income. Well tell that to investors who bought 10 years ago. It’s outperformed every other major asset class since then. Do you really expect income on top?

4. The ‘arguably more positive outlook about the US and the global economy’ means the Fed may stop printing money. That’s laughable, just look at the falling output from manufacturing reported today (click here). QE to infinity looks a safe bet.

5. Central banks in troubled nations may sell their gold. Come off it professor, the central banks are all big net buyers of gold and will buy more than ever this year.

6. Extremist US politicians have overhyped gold. Yes but do you really think that has much influence elsewhere? Might it not be counterproductive? Nobody in China, India or the Arab world gives a fig what these guys have to say.

Totally wrong

Wrong on every count! Let’s throw in a few more thoughts. India bought more gold in the past quarter than in the past year. Sales of US gold eagle coins are up a third on a year ago. The Dubai gold souks have been struggling to keep up with demand for physical gold.

And ah, the hedge funds are starting to buy again, realizing the trend is their friend with bullion. Even they have not been tricked by the central bank intervention in the gold market in April, unlike Professor Roubini.

Like his earlier stock market call the good professor is about three or four years early. Even then we are not convinced. Gold will likely be a key part of a global currency reset to lift the world out of a currency disaster, and may never be as cheap again as it is today.