Tags: Roubini | gold | economy | QE

Roubini Sees Gold Falling to $1,000 by 2015 as 'Rush Is Over'

By    |   Monday, 03 June 2013 11:23 AM

While gold prices might temporarily move higher over the next few years, they will be very volatile and will trend downward over time as the global economy improves, New York University economist Nouriel Roubini writes in an article for Project Syndicate.

Gold bugs, who Roubini calls a collection of "paranoid investors and others with a fear-based political agenda," predicted gold could rise to $3,000 or even $5,000 an ounce.

But Roubini sees gold falling to $1,000 an ounce by 2015.

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Gold performs best when the risk of substantial inflation is high. Yet despite years of aggressively loose central bank policies, inflation is low and falling.

That's because banks are hoarding excess liquidity by building up excess reserves, while private and public debt deleveraging is keeping demand growth below supply growth, he says. Therefore, businesses have little pricing power because of excess capacity and workers have little bargaining power due to high unemployment.

In addition, gold does not provide income unlike other assets. With the economy recovering, other investments offer higher returns, notes Roubini.

In addition, gold prices rose sharply when inflation-adjusted interest rates became negative after successive rounds of quantitative easing (QE), he explains. "The time to buy gold is when the real returns on cash and bonds are negative and falling."

However, an improving economic outlook indicates central banks will end QE, meaning that real rates will increase.

Gold bugs have argued that rising sovereign debts will make government bonds riskier and make gold more desirable. But indebted governments, Roubini maintains, have large gold stockpiles that they can sell to reduce their debts.

"Gold remains John Maynard Keynes's 'barbarous relic,' with no intrinsic value and used mainly as a hedge against mostly irrational fear and panic," Roubini writes.

"Yes, all investors should have a very modest share of gold in their portfolios as a hedge against extreme tail risks. But other real assets can provide a similar hedge, and those tail risks — while not eliminated — are certainly lower today than at the peak of the global financial crisis," he adds.

"The gold rush is over."

Gil Morales and Chris Kacher, principals and managing directors of MoKa Investors LLC and Virtue Selfish Investing LLC, in an article for MarketWatch, note that gold has been called into question because of speculation that the Federal Reserve will end QE.

Yet they believe the Fed "is in no position" to start unwinding QE and a major buying opportunity may be approaching.

"Our view is that investors should simply let the current decline in gold run its course, at least until a technical low can be discerned."

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While gold prices might temporarily move higher over the next few years, they will be very volatile and will trend downward over time as the global economy improves, New York University economist Nouriel Roubini writes in an article for Project Syndicate.
Roubini,gold,economy,QE
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2013-23-03
Monday, 03 June 2013 11:23 AM
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