'Dr. Doom' Roubini Forecasts 30% Drop for Gold Prices

By Commodity HQ  JUN 07, 2013 1:00 PM

In his latest editorial, Nouriel Roubini wrote that he expects gold to fall below $1,000 per ounce, which would take the precious metal down 30% to price levels not seen since 2007.

 


Dr. Doom is back in the news, this time predicting the end of the gold bubble. While this claim may seem outlandish to some, analysts are hard-pressed to ignore Nouriel Roubini, after his prediction of the 2008 financial crisis fell on deaf ears. The chairman of Roubini Global Economics and a professor at NYU Stern School of Business, Roubini has always had strong opinions on gold and the precious metals space, and his newest sentiment for the metal is likely to cause many to reconsider their holdings.

Gold to Be Gutted

Roubini wrote an editorial at the beginning of June stating that he expects gold will fall below $1,000 per ounce, taking prices down to approximately 30% from current levels, which is a point not seen since 2007. “Gold remains John Maynard Keynes’s ‘barbarous relic,’ with no intrinsic value and used mainly as a hedge against mostly irrational fear and panic,” writes Mr. Roubini, who has a past of strong opinions on precious metal investing.

He theorizes that because gold provides no income and doesn’t pay a dividend, investors are growing yield hungry and are moving towards riskier assets as markets improve.

At the root of this precious metal bubble burst, Roubini points to the global lack of inflation (a heavily debated point) despite an increase in the money supply. “The reason (for this) is simple: While base money is soaring, the velocity of money has collapsed, with banks hoarding the liquidity in the form of excess reserves. Ongoing private and public debt deleveraging has kept global demand growth below that of supply.”

Government holdings of gold are also worrisome, as he notes that gold fell 13% one day simply because Cyprus threatened to sell a fraction of its $400 million reserves. Many countries have significantly more in reserves than $400 million; if countries like the US, Germany, or Italy decided to sell any percentage of their reserves, the yellow metal would be done for.

Betting Against Gold

Investors looking to place their bets with Roubini should check out the following funds for a bearish play on gold.
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Editor's note: This article by Carolyn Pairitz was originally published on Commodity HQ.
No positions in stocks mentioned.