Roubini gives a talking to gold bugs, other 'pseuds and hacks'
The gold price suffered another down day on Tuesday as large investors reduce long positions built up in the market in the run up to the metal's January 22 high of just under $1,308 an ounce.
Net long positions – bets that the price would go up – held by hedge funds and other so-called "managed money" speculators climbed by 10 million ounces in January, reaching the highest level since December 2012.
But the apparent averting of a single currency crisis sparked by the Greek election provided the opportunity to liquidate some of the bullish positions and shift focus back to US economic fundamentals, the rampant dollar and a likely June rise in interest rates.
At $1,260 an ounce late on Tuesday, the metal is still trading up some $80 or 6.4% in 2015, but the strong upwards momentum was broken last week Thursday when the price plunged $35 during the worst trading session in more than a year.
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 An Unconventional Truth – What the market doom-and-gloomers fail to grasp about anemic growth gives a talking to gold bugs and a vast swathe of other monetary policy observers:
One result of this global monetary-policy activism has been a rebellion among pseudo-economists and market hacks in recent years. This assortment of “Austrian” economists, radical monetarists, gold bugs, and Bitcoin fanatics has repeatedly warned that such a massive increase in global liquidity would lead to hyperinflation, the US dollar’s collapse, sky-high gold prices, and the eventual demise of fiat currencies at the hands of digital krypto-currency counterparts.
Roubini goes on to explain to the "doomsayers [who] have barely any knowledge of basic economics" that deflation, not inflation, is the world's most pressing problem. That's due to a pervasive lack of demand and disinflationary pressures brought on by the fall in commodity prices.
Like all good economists Roubini takes with the one hand and gives with the other and his cure for the globe's economic ills has some good news for miners:
Perhaps more important has been a profound mismatch with fiscal policy. To be effective, monetary stimulus needs to be accompanied by temporary fiscal stimulus, which is now lacking in all major economies. Indeed, the eurozone, the UK, the US, and Japan are all pursuing varying degrees of fiscal austerity and consolidation.
Even the International Monetary Fund has correctly pointed out that part of the solution for a world with too much supply and too little demand needs to be public investment in infrastructure, which is lacking – or crumbling – in most advanced economies and emerging markets (with the exception of China). With long-term interest rates close to zero in most advanced economies (and in some cases even negative), the case for infrastructure spending is indeed compelling. But a variety of political constraints – particularly the fact that fiscally strapped economies slash capital spending before cutting public-sector wages, subsidies, and other current spending – are holding back the needed infrastructure boom.
If governments do indeed heed his and the IMF's advice we could see an infrastructure boom that could dwarf that of China. And set off a super super-cycle for metals and minerals. Whether this boom would extend to gold is clearly not Roubini's concern.
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