Some famous economists and legendary investors like Warren Buffet don’t like gold all that much. Take New York University Professor Nouriel Roubini for example. He is famous for having predicted the US housing bust and subsequent recession more than a year before they happened. He isn’t that crazy about gold.
Although he admits that gold could be one of the preferred safe haven investments in the case of a double dip recession, he says: “in that situation, things like the dollar, the yen, the Swiss franc have more upside in a situation of rising risk aversion because they are much more liquid than the gold market."
I believe that gold is going to trade around current level. There are two extreme events that lead to a spike in gold. One is inflation, but we have no inflation in advanced economies. If anything, there is a risk of deflation. The other event in which gold prices go up is the risk of a global financial meltdown, and that tail risk has been reduced because we backstopped the financial system.
We can try to prevent double-dip recession, but the idea we are going to have rapid recovery of growth to potential in advanced economies – U.S., Europe, Japan – is mission impossible.
Without question Roubini was right about his predictions on the US housing bubble. That does not guarantee that he is right on gold. He doesn’t like gold. He got into a famous media fight with Jim Rogers when he said Rogers’ prediction that gold will reach at least $2,000 an ounce is “utter nonsense.” At that time he said that maybe gold will reach $1,100.
In fact, in a 2007 video interview on TheStreet.com Roubini predicted gold prices will weaken. Roubini has been proved wrong on gold. Now all we have to do is wait to see if Rogers, who predicted the start of the commodity rally in 1999, is right about this $2,000 target for gold.
Another noted economist who doesn’t like gold is Harvard University historian Niall Ferguson. He said the global economy remains plagued by the trade imbalances that helped trigger the financial crisis and that U.S. consumers are not going to provide the engine of growth. Nothing is going to replace the U.S. consumer in the short term, he said. He agreed with Roubini that growth in developed economies will remain lackluster, and said that “big political storm clouds” are gathering in the U.S. if the Democratic Party loses control of Congress and President Barack Obama's leadership becomes hampered.
“What we see now is a period of very depressed growth in the developed world," he said.
Although even a broken clock is right twice a day Ferguson has been consistently wrong about gold.
Back in 1999, just before gold began its bull market, Ferguson said:
The twilight of gold appear[s] to have arrived. True, total blackout is still some way off...Gold has a future, of course, but mainly as jewelry.
When interviewed in 2008 amid the subprime meltdown and global panic and some $445 higher per ounce for gold Ferguson said the following about gold: “I have been debating today whether gold bars really are the answer," Ferguson confessed to the New York Magazine . But "they probably aren't." Ferguson probably regrets his decision.
Now, 11 years after his first prediction, and with some 356% gains in gold, he says 2010 is not the time to buy gold either.
"A lot of the upside is already there," Ferguson said live by video-link to the Wall Street Journal several months ago. "The time to buy was in 1999, not 2010..."
George Soros, famous for his successful 10 billion dollarbet against the Bank of England in 1992, called gold the "ultimate bubble" in January 2010. He owned gold at the time and held on to his gold positions, a move that proved hugely profitable. At the time that Soros called gold the “ultimate bubble” gold was trading at about $1,100 an ounce. Soroscut his holdings of gold only in the first quarter of 2011. The lowest price during the first three months of 2011 was more than $1,300. The highest was about $1,450. He should have held one longer.
We give economists who are willing to go out on a limb and make long-range predictions a lot of credit. It takes courage. It’s difficult enough making predictions from week to week, or even day to day.
We collected a few words from some very smart people. (Of course being smart, doesn’t necessarily mean that you are right.)
Delusion #1 is that we’re on the road to recovery, just more slowly than we’d like; to be fair, the White House keeps saying this.
If you ask how long it will take us to return to, say, 5 percent unemployment on the current track, the answer is forever.
Delusion #2 is the belief that the stimulus may yet do the trick, because there are still substantial funds unspent. The level of GDP depends not on total funds spent, but on the rate at which funds are being spent, which has already peaked…It’s all downhill from here.
There are 3 billion people in Asia and most of them have not had a very good standard of living in the past 200 years. That is changing and changing very rapidly. They are going to eat more; they are going to wear more clothes.
Trying to push the problem out to the future, and printing money, we just had another example here in the US, it didn't work and it's not going to work.
Things could get very bad in this country, and people might want to leave, and when they do, it might be illegal to leave with your gold or your money.
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Sunshine Profits' Contributing Author