“I don’t believe in gold,” Roubini told CNBC. “Gold can go up for only two reasons.”
“[One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment above 10 percent in all the advanced economies.
The only way gold can go higher in a deflationary economy is a financial Armageddon, Roubini says, but we’ve avoided that tail risk as well.
So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense, Roubini asserts.
We have two reasons for why gold would go up, according to Roubini 1) inflation 2) economic Armageddon.
Mr. Roubini looks as if he is firmly in the deflationist camp, which suggests we will not see inflation because of the continued deleveraging and contraction in credit. This is arguable, but in the short-term, is certainly one of several plausible scenarios.In the long-term, say five years from now, it’s a different matter. But for now, not even the Bernanke Money Printing Helicopter fleet will be able to cause inflation, if we are to believe Mr. Roubini.
The other scenario, and much worse than scenario #1, is economic Armageddon. Mr. Roubini believes this has been avoided. This may very well be true, though paranoid doom and gloomers must wonder how we are to avoid economic and financial Armageddon with another wave or real estate collapses coming, consumer spending coming to a stand still, world trade getting destroyed, consumer and commercial credit lending frozen, and the US government taking on more debt in terms of borrowing and entitlements than any nation in the history of the world.
If you believe Mr. Roubini, than I guess holding the US Dollar is going to be the only safe investment out there.
If however, you believe something is amiss and Mr. Roubini is not telling us something, then perhaps holding a couple ounces of gold and silver may be a good idea.