Mr.Nourial Roubini Says Gold Will Go To USD1000, What is our call?

June 2, 2013

Mr.Nourial Roubini Says Gold Will Go To USD1000, What is our call?

In a piece up at Project Syndicate, economist Nouriel Roubini says gold will fall to around $1,000 before the end of 2015.

He gives six reasons why.

We summarize:

v    Gold spikes during extreme crises. The crises are over.

v    Gold does well during periods when there’s a risk of high inflation. That clearly is no longer a big worry, given how much central banks have unsuccessfully tried to stoke even modest inflation.

v    Now with the economy recovering, nobody wants to be in rocks that don’t pay any dividends.

v    Real interest rates are rising. That kills gold.

v    Governments with debt issues are selling gold.

v    Gold was juiced by right-wing fanatics in the US. That boom is over.

(Click on the above link to read the total article. Now, let me deal with all the above reason one by one.)

Are Crises Over? :-  He said….crises are over…..let us see just US statistics…..

      I.      Back in 1980, the U.S. national debt was less than one trillion dollars. Today, it is rapidly approaching 17 trillion dollars... 

  II.      Back in 1970, the total amount of debt in the United States (government debt + business debt + consumer debt, etc.) was less than 2 trillion dollars. Today it is over 56 trillion dollars... 

III.      During Obama's first term, the federal government accumulated more debt than it did under the first 42 U.S presidents combined. 

IV.      If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off. 

   V.      According to one calculation, the number of Americans on food stamps now exceeds the combined populations of "Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming."

Our Call:- The above statistics clearly says…..US is in soup. With Euro region also joining US, the problems will only get compounded. The peace which we see now….can very well turned out to be lull before the storm. In short, we do not agree that Crises are over. If they have been resolved…that too by printing money rather than real economic activity…..then we are fooling ourselves.

Is Inflation Under Control?

With the grace of GOD…..I am dealing with clients spread across 35 countries of the World. Not a single guy has told me that day today commodities and utilities prices have started softening.

The Rate of Growth in Prices may have come down but the real inflation is still pinching the normal guy. So, we do not agree here also.

Is Economy Recovering?

He says….with the economy recovering; there are better avenues for investing rather then being in the Gold. The recent economic times headline says…..Indian’s have bought half of total year’s gold in last 3 months!!

In fact, India’s GDP rate has hit the bottom. At 4.8%, it was the lowest in last 10 years.

As far as US is concerned, there are many off balance sheet items which are not reflected. If they are included, the picture on its economy will also change. Same goes with European countries.

In short, Indian as a country does not agree with Mr.Roubini. They want to go with the GOLD.

Real Interest Rates Are Rising?

If we agree that inflation is coming down, then only we can agree with the above!!! Do we agree that inflation is coming down?

The other concern is Cyprus experience. If you money is lying in the bank and one fine day, your government says…..they will deduct certain percentage of your deposits to pay their debts???? The people with big money will not invest in Bank….in fact data shows before the Cyprus Govt. announced seizure of deposits ….many well informed big deposits moved out of it.

People with unaccounted money will not invest in Bank deposits.

Highly Indebted Countries will Sell Gold:-

He is quoting example of Cyprus….. “Indeed, a report that Cyprus might sell a small fraction – some €400 million ($520 million) – of its gold reserves triggered a 13% fall in gold prices in April”.

Was the fall in Gold prices solely due to above or it was used by speculators as a reason to do Mandi in Gold? Time will only prove this.

Gold was juiced by right-wing fanatics in the US :-

His last argument is – “A currency serves three functions, providing a means of payment, a unit of account, and a store of value. Gold may be a store of value for wealth, but it is not a means of payment; you cannot pay for your groceries with it. Nor is it a unit of account; prices of goods and services, and of financial assets, are not denominated in gold terms.”

Last year there was a major move by China to launch gold based currency….so it can be used to pay for grocery and it can also be used as a unit of account !! So, here also we do not agree with him.

My Personal Call on GOLD :-

I am neither an expert on GOLD nor an economist like Mr.Rouini. So, please use your own discretion while you read my call.

On 3^rd April, when Societe Generale came out with Report on Gold……they said….FED will stop further QEs…..and knowing the above ground realities….we had said….  “we do not see FED stopping QE programme”.

To our credit, last month Mr. Ben Bernanke had  said…..he is not in a hurry to stop the QE programs.

It is also a fact that we are not adding gold at this level and we had categorically said on 3^rd April….. “we will prefer stocks over gold”. If you need testimonials…..please join us on Twitter and see all our calls since April!!

Final fact…..FIIs are mad after Indian Stocks……you also be MAD, simple.

If you need help in Investing, do approach us.

You can follow me @hiteshmparikh on twitter.

Live With Passion, Invest with Passion.

Hitesh Parikh.