[KM] ♥Keep_Mailing♥ Why Gold will trade below $1,000 by 2015

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Why gold, 'that barbarous relic,' will trade below $1,000 by 2015

1. Gold spikes in times of serious economic, financial and geopolitical risks — think "financial Armageddon." But that doesn't make it such a safe investment, says Roubini, noting sharp falls in gold prices during crisis periods of 2008 and 2009.
2. Gold performs best in times of high inflationary risks, as its popularity grows under the view that it is a hedge against inflation.  But even after aggressive monetary policy by central banks, he says, global inflation is low and dropping further, and commodity prices are adjusted downwards.
3. Gold provides no income. With equities, you get dividends; with bonds, coupons and with property, rent. Now that the global economy is recovering, other assets are providing higher returns — so who needs gold, which has "vastly" underperformed since early 2009 versus stocks, he asks.
4. Real rates are headed higher on the view that the Federal Reserve and other central banks are going to back out of quantitative easing and zero-policy rates. "The time to buy gold is when the real returns on cash and bonds are negative, and falling," and that's not now, he says.
5. Highly indebted sovereigns are not pushing investors towards gold and away from their bonds. In fact, many of these governments have high stocks of gold, which they may dump to cut debt. Italy, for one, could be tempted to pare back on its huge holdings.
6. Political conservatives in the U.S. have hyped gold so much that it's become counterproductive. "For this far-right fringe, gold is the only hedge against the risk posed by the government's conspiracy to expropriate wealth," he says.

Gold remains a "barbarous relic," with no intrinsic value, used as a hedge against "irrational fear and panic." But investors can get their hedge against extreme tail risks — which have come way down — elsewhere.

- Nouriel Roubini

Last week, famed investor Jim Rogers said the gold correction wasn't going to end until more people were scared, noting it's had an "abnormal" 12-year run. And investment banks have been paring back on their gold forecasts since the metal started falling out of bed last April. J. P. Morgan is among the most recent.

Source: MarketWatch.com

 

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