Roubini still doesn’t get it

Roubini still doesn’t get the real underlying fundamentals of gold.  In Sep 2009 he wrote

The recent rise in gold prices is only partially justified by fundamentals, and is in part a bubble that could easily go bust. Unless the world enters a period of high inflation or slips into a depression—both relatively low probability events at this point—there is little reason for gold to rise towards US$2000. Rather, its rise will be gradual and subject to significant risk of downside correction. Some diversification of gold in central bank and investor portfolios may make some sense, but not a flight out of dollars and into gold. The only scenario where gold should rapidly rise in value is one where fiat currencies are rapidly debased via inflation. That scenario may eventually materialize if large and monetized fiscal deficits persist for a long period of time; but overall, today there are more deflationary than inflationary forces in the global economy, as the slack in goods and the labor market is still rising.

Investors should thus be wary of getting the gold bug and being stuck with this barbarous relic. The recent swings in gold price—up 10 percent one month, down 10 percent the next—prove  the point that gold has little intrinsic value and that most of its price movements are based on beliefs and bubbles. As an insurance policy against the tail risk of eventual inflation, it may be useful to hold a small amount of gold in one’s portfolio, but stocking up portfolios with a fiat currency that has marginal practical use, a zero nominal interest rate, high storage costs, and the price of which is subject to volatile whims and bubbles is totally irrational. If you want to hedge against inflation, stock up on Spam or other canned food or buy futures on commodities that have more physical uses and consumer demand.

Today he is out with a barrage of anti-gold and gold bubble tweets such as these below.

Bubble poppin?@ReutersJamie: gold -5% today & yesterday. on track for steepest 2-day decline since dec ‘08. remember that nasdaq/gold chart

All the gold bugs who ridiculed my gold-NASDAQ bubble chart yesterday peeing in their pants 2day? @zerohedge: Gold liquidation accelerating

He doesn’t mention that he was nearly 50% off on his bearish gold call.  There is a tiny probability that gold will fall below the levels of $900/oz it was trading at when he was already callying gold a bubble.  There is a greater chance that three zeroes are lobbed off the USD currency denomination.

The recent run in gold was very aggressive, and if you have taken our advice and been buying gold over the past two years, you’re up smartly.  The current clearout is a natural market process.  The market has gotten extended to the topside, and needs a clearout to scare the weaker hands out of their positions.  At this point, the market will be restored to health, and gold will again climb higher. Then Roubini will be ridiculed again.

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