Roubini: Here's Five Reasons the "Barbarous Relic" Gold Is Going to Tank

Roubini: Here's Five Reasons the "Barbarous Relic" Gold Is Going to Tank
Posted Dec 14, 2009 08:56am EST by Joe Weisenthal in Investing, Commodities, Recession
Related: dia, spy, uup, gld, xlf, qqqq
From The Business Insider, Dec. 14, 2009:

Nouriel Roubini's nickname is "Dr. Doom," but unlike other noted doomsayers who warn about massive debt and deflation, he's a Keynesian. So his views are more in line with the likes of Paul Krugman -- more spending, please -- than many of the uber-bears with whome he's frequtnly lumped in.

And like other Keynesians he's not a gold bull. Remember, Keynesians believe in the curative power of paper money.

On Friday he dropped a roundhouse kick on the gold bulls with a post at Roubini.com about "The New Bubble in the Barbous Relic that is gold."

Via ZeroHedge, here are his five reasons why gold is toast:

First, the dollar carry trade may at some point unravel, popping the global asset bubble that this carry trade has fueled.

Second, central banks will eventually need to exit quantitative easing and effectively zero policy rates, which will put downward pressure on risky assets including commodities.

Third, bouts of global risk aversion may occur as the global recovery may turn fragile, anemic and subpar, thus leading to a rise in the U.S. dollar that would drive down prices of commodities and gold in dollar terms.

Fourth, since the carry trade and the wall of liquidity are causing a global asset bubble, some of the recent rise of gold is also bubble driven by herding behavior and momentum trading, pushing gold higher and higher. But all bubbles eventually crash and the bigger the bubble the bigger the eventual crash.

Fifth, the effect of rising sovereign risk on gold prices is ambiguous, as the events of recent weeks suggest. A risk in such risk could push up the price of gold if it leads to expectations that central banks will eventually monetize those fiscal problems. But in practice it has weighed on the price of gold because it has increased investors’ risk aversion and led to a rush into a different (and more liquid) asset than gold—e.g. the U.S. dollar—thus pushing gold prices down. In general, gold always competes with fiat currencies and anything that is dollar bullish—like repeated bouts of global risk aversion—tends to be gold bearish.

 

Did he say he was going to short, haha? Beware the gold debugger who has no shorts!

 

Roubini makes some good points and he may be correct about gold going down. However, he may also be pissed that he missed the entire gold bull market:

http://www.businessinsider.com/roubini-gold-has-topped-2009-6

Or, maybe, he is trying to drive the price of gold down so that he can buy some at cheaper prices, as China is doing.

It is interesting how gold bulls get all of the publicity when gold is rising and gold bears get the press when gold is falling.

Here are five reasons gold could continue to rise:

1. The gold trend is up.
2. The long term cycle for gold is up according to the Foundation for the Study of Cycles.
3. The US has to continue printing dollars to monetize our debt and finance our spending programs. Many other countries are doing the same, causing a loss of faith worldwide in fiat money.
4. Other countries are buying gold with their surplus, soon to be worthless, US dollars.
5. The real estate crisis will get worse next spring due to a large new wave of option-arm resets, causing our economy to worsen.

 

And we are in the age of Peak Gold.

 

I hope that is not the same as peak oil. :eek:

 

There is only such as thing as Peak Gold or Peak Oil (energy) if cost and environmental impact is factored out.

We pretty much have most of the gold that has ever been mined. It is not really consumed, so there really is no "peak." So it will always be available on a supply and demand basis.

Even seawater has a trace amount of gold. Jack up the price, and people will find a way to extract it. Mines that are unprofitable will disgorge lot more gold if the price is right. Make it REALY valuable, and people will eventually harvest it from asteriods. Currently, there are plans to extract Helium3 (I believe that is what it is) from the moon, since it could be so valuable.

 

Nouriel Roubini (born 29 March 1959) is a professor of economics at the Stern School of Business, New York University and chairman of Roubini Global Economics, an economic consultancy firm.

After receiving BA in political economics at Bocconi University and doctorate in international economics at Harvard University, he began academic research and policy making by teaching at Yale while also spending time at the International Monetary Fund (IMF), the Federal Reserve, World Bank, and Bank of Israel. Much of his early studies focused on emerging markets. During the administration of President Bill Clinton, he was a senior economist for the Council of Economic Advisers, later moving to the United States Treasury Department as a senior adviser to Timothy Geithner, who is now Treasury Secretary.

http://en.wikipedia.org/wiki/Nouriel_Roubini

 

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Asked whether he invests in stocks, he replied, "Not as much these days. I used to have a lot in equities — about 75% — but over the past three years, I’ve had about 95% in cash and 5% in equities. You’re not getting much from savings these days but earning 0% is better than losing 50%. . . . I don’t believe in picking individual stocks or assets. . . . Never invest your money as though you are gambling at the casino. Buying and selling individual stocks is a waste of time."[7]

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So what is Roubini ?

As I suspected....

Is in the media business....

 

Roubini is a Keynes-twerp, 'nuf said.

 

Those of us who personally have experienced Peak Life tend to be more accepting of Hubbert's theory. We won't be extracting gold from the sea anytime during the period I plan to be making money on gold. For my "golden" years.