Reason No. 1: Gold prices tend to spike when there are serious economic, financial, and geopolitical risks in the global economy. But, even though this may be the case in a real and continuing financial meltdown he feels that gold would still be a poor investment with margin calls forcing sales with the result that the gold price can be extremely volatile, up and down, even at the peak of such a crisis.
Reason No. 2: Roubini notes that gold performs best when there is a risk of high inflation, as its popularity as a store of value increases, but points out that despite the huge amount of monetary easing, inflation has remained low, and may actually be falling due to the velocity of money collapsing. Commercial banks are seen as hoarding the liquidity provided by the Central banks, while reduced purchasing power and low wage demands because of high unemployment are keeping inflationary pressures down.
Reason No. 3: The lack of earnings from gold argument -- While other forms of investment generate income, gold does not. So Roubini sees gold solely as a play on capital appreciation and that with the global economy, arguably, recovering, other assets are seen as generating higher returns. Indeed, QE-boosted US and global equities have vastly outperformed gold since the sharp rise in gold prices in early 2009.
Reason No. 4: The arguably more positive outlook about the US and the global economy implies that over time the Federal Reserve and other central banks will exit from quantitative easing and zero interest policy rates, which means that real rates will rise, rather than fall. With gold performing better in a zero or negative interest rate environment Roubini thus sees its attraction waning as interest rates start to rise.
Reason No. 5: Roubini argues that some of the Central banks of the more indebted nations may be tempted to liquidate part of their gold holdings and thus further depress the gold market. He points specifically to Cyprus where a report that it might sell a small fraction -- some €400 million ($520 million) -- of its gold reserves may have contributed to triggering a 13% fall in gold prices in April. Countries like Italy, which has massive gold reserves (above $130 billion), he says, could be similarly tempted, driving down prices further Roubini comments..
Reason No. 6: Here he blames some extreme political conservatives, particularly in the U.S. for overhyping gold in ways he considers to have been counterproductive. These 'fanatics', as he calls them, have suggested a return to some form of gold standard as being inevitable as they predict hyperinflation may ensue from the Central bank debasement of currency through Quantitative Easing. He goes on to say that given the absence of any conspiracy to expropriate citizens wealth, falling inflation, and what he sees as the inability to use gold as a currency, such arguments cannot be sustained. www.mineweb.com/mineweb/content/en/minew
