Dr Doom Roubini: Gold bugs hype 'ended up being counterproductive'

Nouriel Roubini is often, somewhat unkindly, referred to as Dr. Doom (or 'Permabear') because of the many pessimistic economic predictions he's made in the past.

But ever since he accurately forecast the 2008 global financial crisis sparked by US sub-prime lending, people have tended to listen to the NYU’s Stern School of Business professor and IMF, World Bank and US Fed economist.

Roubini, who now heads his own global economics consulting business, in an article titled After the Gold Rush takes a swipe at gold bugs, whom he describes as "a combination of paranoid investors and others with a fear-based political agenda."

Roubini lists at Project Syndicate six reasons why the gold bubble burst and "why gold prices are likely to move much lower, toward $1,000 by 2015":

  • Gold spikes during serious crises, but even when it is "metaphorically the time to stock your bunker with guns, ammunition, canned food, and gold bars," bullion can still correct sharply as has now happened and falls are usually exaggerated by margin calls.
  • Gold performs well when the risk of runaway inflation is high, but "even though successive rounds of “quantitative easing” have doubled, or even tripled, the money supply in most advanced economies – global inflation is actually low and falling further."
  • Unlike equities, bonds or real estate, gold does not provide any income and with the global economy recovering, investors are rotating into these asset classes.
  • Gold was boosted as QE pushed inflation adjusted interest rates into negative territory, but real interest rates are now rising and hurting gold.
  • Even though its reserves are tiny, threats by Cyprus to sell its gold panicked the market in April. Other governments struggling with debt like Italy may be tempted to do the same and since it has $130 billion worth of gold, it could really move the market down.
  • "Extreme political conservatives, especially in the United States, hyped gold in ways that ended up being counterproductive," and the far-right arguments about currency debasement, a return to the gold standard and hyperinflation "cannot be sustained."

Continue reading at Project Syndicate.