Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
S&P Stock Market Trend Forecast to Dec 2024 - 16th Apr 24
No Deposit Bonuses: Boost Your Finances - 16th Apr 24
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Chicken Little Nouriel Roubini Says Gold Apparently Has No Intrinsic Value?

Commodities / Gold & Silver 2009 Dec 17, 2009 - 12:10 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleGold has no value. Whereas the Dollar...?
 
NOURIEL ROUBINI was "one of the few to predict the financial crisis" reckons the Financial Times. Yet plenty of other chicken littles, amateur and professional, had long warned of trouble ahead, too.


Hence the 150% rise in gold prices even before the crisis broke in August 2007. Set against negative real interest rates, unfettered bank leverage and runaway deficit spending, gold's rare physical persistence looked a fair bet. And absent Armageddon or double-digit inflation, a growing handful of people chose to store a chunk of their change in metal, starting around 2001.

Oh sure, gold has since outstripped the S&P's best-ever run of year-on-year gains (1982-1989). It's not fallen for more than two consecutive months either since April '01. But clearly, back then, and long before our present troubles showed up, these people were nuts!

At least, in Roubini's world they were. Which brings us right up to date.

This decade's three gold-friendly trends – of sub-zero rates, over-sized leverage and relentless state deficits – remain firmly in place. Sadly for fixed-income investors (i.e. everyone now or soon to be retired), the first and the third look set to blow up together, sooner or later. Quite when, who can be sure? But the quietly broadening move towards gold (Glenn Beck aside) rolls on as well. And so too, oddly, does the idea that gold only rises on the back of runaway inflation in consumer prices...or a wipe-out Armageddon in stocks and bonds.

Those two eventualities would likely push gold sharply higher from here. We might just get them all at once if current trends persist for much longer. Better to take a position ahead of time, you might guess. But no. Not if you're smart like Roubini.

"With no near-term risk of inflation or depression, why have gold prices started to rise sharply again in the last few months?" asks Dr.Doom himself of his RGE Monitor clients. Without those extreme events, this fall's rise in the gold price must be a bubble, he says.

"When inflation is high and rising, gold becomes a hedge against inflation; and when there is a risk of a near depression and investors fear for the security of their bank deposits, gold becomes a safe haven."

So far, so fair. But gold's performance from 2003-2007 – when it rose alongside everything else except the Dollar – shows that true chicken littles tend to move early. Inflation hedging is wasted if you wait until inflation has struck. Safe haven hoarding comes too late once the depression's begun. That's why, we guess, ever-more chicken littles continue to buy gold regardless of what the latest data might say. Because the coming collapse of the sky won't show in your rear-view mirror. Not unless, like a good many "gold bugs", you actually crane your neck round...and squint at history to help guide your driving through what are proving historical times.

Money printing typically leads to inflation; excessive leverage tends to blow up. Governments can in fact become bankrupt. The center of power rarely sits still for a century or more...

The problem, of course, is that gold pays no income and earns no quarterly cashflow. That makes it invaluable on contemporary metrics, a fact most pundits mistake for worthless. And "Since gold has no intrinsic value," says Dr.Doom, bounding ahead of his error, "there are significant risks of a downward correction."

Yes, he acknowledges six basic reasons why gold continues to rise. To save space – and show just why they might matter – we'll summarize Roubini's bull case as:

  • money printing;
  • bank leverage;
  • the Dollar;
  • falling mine output;
  • Asian gold hoarding; and
  • the ultimate "too big to save" of government itself.

Against this, however, Roubini foresees an end to quantitative easing and zero rates, buoying the Dollar. Or perhaps "the global recovery may turn out to be fragile and anemic, leading to...bullishness about the US Dollar." Or failing that, "the Dollar-funded carry trade may unravel, crashing the global asset bubble...together with the wave of monetary liquidity it has caused."

You will have spotted the common denominator. Massed against the six trends Roubini himself puts in gold's favor, the US Dollar will prevail. One way or the other. Perhaps. Either way, gold's recent rise to $1200 an ounce – let alone its jump to fresh all-time highs vs. all other currencies barring the Aussie Dollar and Japanese Yen – must be a bubble.

Because gold, unlike the Dollar, has "no intrinsic value".

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Wiz
17 Dec 09, 09:55
Roubini The Shill

Roubini, the U.S. Government's biggest and latest shill, can't seem to get out of his own way.

Even though he says Gold has no 'intrinsic' value, he comes up with all of the real reasons Gold will continue to shine.

He is shouting from the rooftops that the U.S. Dollar will win in the end, it doesn't sound like he even believes that a little bit. Lame attempt at best.


David
01 Sep 10, 11:20
Nouriel Beck....

You better start hearing the hissing soon or this bubble is going to pop violently just like stocks, housing and petroleum have done....

Yes, gold prices should go up because of global insecurity. But should the price of gold rise 200-300% in 3-4 years.

This is just like the oil bubble of 2008, where the story that "a billion Chinese are going to drive cars" seemed somewhat reasonable (to some). Yes, these demand/animal spirit factors can nudge commodity prices, but if the market is behaving rationally the price movements shouldn't be this enormous.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in