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
eb-gold-news?oid=192868&sn=Detail
