Roubini: Commodity Weakness Signals Global Economic Weakness

Nouriel Roubini is a household name in the financial world as his nickname, “Dr. Doom,” has been rightfully earned, given his propensity for bearish sentiment. Roubini is also not afraid to speak his mind as he has been issuing warnings about the global economy for the past few years. Now, the Dr. has commented on the commodity industry, as he believes its struggles reveal a bigger trend that could see the global economy slip [for more commodity news and analysis subscribe to our free newsletter].

Roubini’s View

“What has happened for the last few weeks is that most of the macro economic news has been actually quite negative and surprising on the downside.” said Dr. Doom in a recent interview. He went on to name a number of factors such as a weakening eurozone, slowing growth in China, and a weak outlook for the U.S. given the sequester and tax hikes that went into place this year.

Roubini suggests that the growth worries of the world’s largest economies have caused commodities to fall in recent months. Though falling prices certainly benefit importers, Roubini believes that prices are being lowered due to expectations of lower economic growth, meaning that the drop in commodities may be preceding a similar trend in other asset classes and impacting central bank policies around the world. “The reason why central banks keep on printing money is because they worry about downside risk to economic growth” he goes on to say [see also Hot Off the Press: Fed to Print $470 Billion in 2013].

GoldGold to March Higher

Despite the weakness that gold has seen in recent weeks, Roubini notes that while many commodities are sputtering, gold still has the potential to make big strides over the long term. Firstly, he notes that many rush to gold when substantial fears of a global economic crisis arise; an event that he seems to expect in the near future. He also expects gold to get some much-needed relief as investors being to worry about inflation given the money printing in both the U.S. and Japan.

His final point is something of a rarity in that he actually gives the current economy some credit for its recent strength. Roubini suggests that falling gold prices are due to a stronger economy and more investors piling into equity markets as of late, seeking a higher return. Of course, this does not change his view for the long term global economy, but he is at least willing to admit that there has been some growth in the past few months and years, even if he does feel that it will be short-lived.

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Disclosure: No positions at time of writing.

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