Dr. Doom is back in the news, this time predicting the end of the gold bubble. While this claim may seem outlandish to some, analysts are hard pressed to ignore Nouriel Roubini, after his prediction of the 2008 financial crisis fell on deaf ears. The chairman of Roubini Global Economics and a professor at NYU Stern School of Business, Roubini has always had strong opinions on gold and the precious metals space ,and his newest sentiment for the metal is likely to cause many to reconsider their holdings [for more precious metal news and analysis subscribe to our free newsletter].
Gold to Be Gutted
Roubini wrote an editorial at the beginning of June stating that he expects gold will fall below $1,000/oz, taking prices down to approximately 30% from current levels; a point not seen since 2007. “Gold remains John Maynard Keynes’s ‘barbarous relic,’ with no intrinsic value and used mainly as a hedge against mostly irrational fear and panic,” writes Mr. Roubini, who has a past of strong opinions on precious metal investing.
He theorizes that because gold provides no income and doesn’t pay a dividend, investors are growing yield hungry and are moving towards riskier assets as markets improve [also see Roubini: Commodity Weakness Signals Global Economic Weakness].
At the root of this precious metal bubble burst, Roubini points to the global lack of inflation (a heavily debated point) despite an increase in the money supply. “The reason (for this) is simple: while base money is soaring, the velocity of money has collapsed, with banks hoarding the liquidity in the form of excess reserves. Ongoing private and public debt deleveraging has kept global demand growth below that of supply.”
Government holdings of gold are also worrisome, as he notes that gold fell 13% one day simply because Cyprus threatened to sell a fraction of its $400 million reserves. Many countries have significantly more in reserves than $400 million; if countries like the U.S., Germany, or Italy decided to sell any percentage of their reserves the yellow metal would be done for.
Betting Against Gold
Investors looking to place their bets with Roubini should check out the following funds for a bearish play on gold [also see Ending QE Could End Gold's Bull Run].
- 3x Inverse Gold ETN (DGLD): Offering a highly levered and inverse view of the gold futures contract market, this fund is perfect for the investor who truly believes the precious metal will tank soon. Year to date, returns for this fund are already up a remarkable 53.71%, receiving a huge bump after gold’s fall in April.
- Daily Gold Miners Bear 3x Shares (DUST): By providing inverse exposure to publicly traded companies that are involved primarily in the mining of gold, DUST is likely to take off when gold demand takes a dive. With the added 3x leverage, this ETF can be a strong indirect play for equity investors feeling bold.
- UltraShort Gold (GLL): Built for daily investment results twice the inverse of the gold bullion, this futures-based fund has also enjoyed a strong year, returning nearly 40% since the start of 2013.
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Disclosure: No positions at time of writing.
Anyone who believes (and I quote) “that gold fell 13% one day simply because Cyprus threatened to sell a fraction of its $400 million reserves” is a complete fool. That might have been a catalyst that the Federal Reserve, J. P. Morgan et.al used as kick-off point, but the reason that gold fell 13% was simple manipulation. They were non-profit sellers, unloading ‘paper’ gold future positions to keep gold down and the worthless USD up. This ongoing theme has just about ran it’s course, and one day soon, the world will wake up and discover that their paper dollars (all FIAT currencies, in fact) are worthless (or considerably worth less) and then the real price of gold will be realized. I don’t look forward to that day, because it will be complete economic chaos, but the day will come, as surely as the sun rises.
I am in complete 110% agreement with you EMPEA, that’s why for some time, I’ve been saving my money in Karatbars, which are 999.9 pure 24KT LBMA GDL gold bullion bars, in smaller, more affordable, transaction friendly weights. The fate of the USD is sealed, …it’s no longer a question of if, …but when. Until then, my long term savings will be in physical hard assets, using a dollar cost averaging approach. http://www.ViewTheInfo.com
Do you mean 30% over and above the 28% that gold price has already dropped? That is sure to prompt an explosive gold purchase, particularly in the Asian countries and trigger a selloff in the Western countries. Does anyone see gold moving from West to East???