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Gold: Roubini's Current Views

If you are interested in physical gold, and follow the economic commentaries of Nouriel Roubini, you may already have read After the Gold Rush which I think may also have appeared under the title "The end of the gold bubble". Mr. Roubini's article was published this past weekend. I read it closely, as I generally do with what Mr. Roubini writes. Frequently I agree, or mostly agree, with Mr. Roubini. That said, I find his comments in After the Gold Rush curious, in circumstances where:

  • his conclusion is that "while gold prices may temporarily move higher in the next few years, they will be very volatile and will trend lower over time as the global economy mends itself. The gold rush is over" - this where in his article he says "there are many reasons why the (gold) bubble has burst, and why gold prices are likely to move much lower, toward $1,000 by 2015;

  • he says the investors should have a "very modest share" of gold in their portfolios as a hedge against extreme tail risk";

  • he says other real assets can provide a similar 'tail risk' hedge, but fails to identify the 'other real assets' he is referring to; and,

  • I think it to be of significant interest that Mr. Roubini - referred to by some as 'Dr. Doom', and who gained enormous 'reputational currency' by predicting the 2008 financial crisis - expresses the view that "(extreme) tail risks, while not eliminated, are certainly lower today than at the peak of the global financial crisis".

Mr. Roubini's views on the potential gold price seem not very different from those of Economic Straight Talk contributor Jeffrey Christian of New York based CPM Group. Mr. Christian commented in this Newsletter on:

In his commentaries Mr. Christian was clear. He defined the 'risk-free' physical gold price as "a long-term base price to which gold prices theoretically might be expected to decline in an environment that was free of the political, economic, and financial risks that drive investors to buy gold".

Mr. Roubini is not so clear in his article with respect to his precise view of world economic circumstances at the time he thinks the physical gold price might be $1,100 per ounce. It would be very interesting to know whether Mr. Roubini would agree that he has developed or assumed a $1,100 physical gold price at the end of 2015 based on a view that by December 2015 we will live "in an environment free of the political, economic, and financial risks that drive investors to buy gold".

Certainly if Mr. Roubini does believe in such a December 2015 environment no 'Roubini detractor' is likely to ever again refer to him as 'Dr. Doom'.

You might want to read an article published yesterday titled The Roubini-Faber Gold Debate which suggests "The Roubini model excludes the financial doom that Faber believes to be unavoidable". To be fair to Mr. Roubini, I think the better statement is that Mr. Roubini states his view with respect to gold without being specific with respect to where he expects the world economy to be at the end of 2015.

Reference: After the Gold Rush, from Project Syndicate, Nouriel Roubini, June 1, 2013 - reading time 4 minutes. Also see The Roubini-Faber Gold Debate, from Market Oracle, James Hall, June 5, 2013 - reading time 3 minutes.

 

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