Roubini Gold Prediction

Nouriel Roubini is at it again and it appears he may once again be right on the money with his predictions for gold, the U.S. and world economies.  An odd thing happened at the end of “the summer of recovery”.  The economy stalled and it is threatening to return to recession, that is of course, if you ever believed that it had left the recessionary phase.  Let’s spend a little time and examine the meat of Nouriel Roubini’s gold prediction.

We are living through what could be the quickest and most devastating failure of a presidency in U.S. history.  What is so amazing and tragically wrong about the Obama regime, is its total disregard and utter contempt for the founding principles upon which the U.S., the greatest nation on earth, was built. As his presidency plummets in the polls, the American people are awakening to what the regime is trying to put over on them.  November should be a rude awakening for the Marxist/Progressive party! Maybe The “Community Organizer In Chief”, or his minions, should have heeded Admiral Isoroku Yamamoto’s  admonition after the attack on Pearl Harbor.

“I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve.”

If one is to set aside the political ideology that the U.S. population is opposed to, by between 56% and 61%, depending on which poll you look at, the solution to the economic crisis is not some difficult formula that has to be developed by the best and the brightest.  The solution is simple and it has worked every time it has been tried.  Reduce taxes and get the government out of the way of the private sector.

Unfortunately, or by design(which I feel is the likely case), “The Community Organizer in Chief” blew the lid off budget deficits and sent our great, great grand children to debtors prison by throwing printing press money into bailouts of corporations, state governments and not into the private sector, where it was desperately needed.  Now you have mega banks sitting on bailout money and refusing to lend to small businesses, let alone the public.  As the economy gets worse heading into 2o11, the regime’s poll numbers will continue to drop and the public’s anger will continue to rise.  This situation will drive gold to $1,5o0 and beyond going into years end.

Nouriel Roubini’s Predictions

On August 27th, Nouriel Roubini had this to say in an interview on Bloomberg TV.

It is quite clear that bailing out companies that should fail and go through bankruptcy, bailing out state governments that should do the same and putting record amounts of people on food stamps does not create jobs and grow the economy.  To the contrary, the regime’s policies guarantee economic stagnation and  devaluation of the U.S. currency! Devaluation of the currency will further rob the wealth of the producers in this country and devastate the wealth of the retired.  Seniors will soon reap the whirlwind through the double whammy of inflation and the false promises (aka LIES) of “Obama Care”.

What we need is a much, much smaller government, and if stimulus were to be applied correctly, it would go to infrastructure improvements like roads and airport construction which would actually produce jobs.  Why not update airports and build high-speed trains between major cities that would create millions of jobs?  Perhaps that is not part of the “plan”.

The Chinese focused on spending for infrastructure as opposed to social welfare and their economy is growing at rates that the U.S. may never see again if the welfare mentality is allowed to be any further ingrained here.  If you look at all the countries that chose not to go the bailout route, China, Brazil. Germany and to a certain degree, Russia, they  are all growing at a better rate than the U.S.

Here is more from Roubini in an interview with Francine Lacqua on Bloomberg TV, Friday, September 3, 2010.

New York University Professor Nouriel Roubini’s contention that the dollar, the yen and the Swiss franc may be a better investment than gold if the world economy slips back into recession is not what a gold bug wants to hear, but gold’s reaction to the general equities meltdown during the “financial” crisis of 2009 backs his point.

“If there was a double-dip recession, increasing risk aversion, some assets are going to be preferred, and gold will be one of them. But 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.”

Is Roubini On The Right Track With His Gold Prediction?

We saw it happen during the “financial” crisis and we will most likely see it again if the stock market has another meltdown during the “double” dip.  During the general equities plunge, gold stocks were sold along with the general equities because they were the only sector that had produced profits and traders needed cash to settle accounts.  That will most likely happen again during the next “major” correction.

It is my contention that the market will probably sell off in a major way shortly, and that gold will drop with it, but not as fast and not as far.  It will be imperative to be disciplined and keep moving your stops up as gold rises into the end of the year. I intend to be very cautious this fall because the U.S. economic environment is subject to radical changes from the political environment, world events and just plain old “fear”.

At this time I am not planning on selling any more than 50% of my position if the stock market starts to implode.  My reasoning for this is based on the action of gold over the last 2 years.  If we have learned one thing, it is that gold can turn on a dime as sentiment changes.  Because of that factor, I don’t want to risk a major up side reversal because I am too cautious.  I can live with that risk level.  The question becomes, “Can You”?

Roubini says:

“I believe that gold is going to trade around current levels.  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.”

I am not sure on either of those points.  With the amount of money that the regime is printing and funneling into the system, I see inflation sooner rather than later and I see no sign that the derivatives situation has been addressed, so global financial meltdown, or at the very least, U.S. financial meltdown is very much in play.  I see no reason to change my prediction of $1,500 per ounce gold by years end.

Massive Deficits And Negative Real Interest Rates

Today’s situation may be different from the recent history that we have witnessed regarding gold and inflation. We are experiencing mind boggling, unprecedented deficits with negative real interest rates.  I think that in this environment, gold will rise, reflecting the incredible damage that is being inflicted on the dollar.  This damage may not be evident to all today, but in short turn, there will be no way to keep inflation at bay.  At that time, the only question will be, “Are we going to be lucky enough to avoid hyper-inflation?”

This regime is “hell bent” on devaluing the currency in order to fund its social programs and install its “Progressive” agenda.  Gold will react very well in the environment of  currency devaluation!

Seasonal Gold Buying

Add to the uncertainty that all of the above brings to market and couple it with India’s wedding season, Christmas and the rest of the religious holidays and we are setting up for a strong advance in the price of gold going into the final quarter of 2010.

Some analysts are concerned that the high gold prices might discourage buyers, but we have learned a lot  about the gold market lately.  Whenever gold spikes up $100 , the demand drops an conversely, anytime gold falls by $100  quickly, the demand picks up.  There are strong buyers waiting in the wings to buy any significant gold dips.

A Tip Of The Hat To Roubini!

Make no mistake about it, Nouriel Roubini predicted the “financial” crisis one year before it occurred and that is a major achievement.  I sure wish that I had seen it coming because it would have saved me money and a lot of hair pulling while I was forced to wait for gold to return to favor, but return it did.  Now the game is even more volatile and I for one want to pull all that I can out of gold’s next leg up before the general equities start looking for 6,000 again! Opportunity is knocking, so it is best to heed the call, but also we need to keep Nouriel Rubini’s gold prediction in mind and give it the consideration and the respect that it deserves.

Till next time, good luck and good trading!

More Gold Market Analysis:

• Inflation’s Influence On Gold Predictions
• Time To Buy Gold!
• Gold and Derivatives
• Inflation and the Price of Gold
• Market Volatility Is Here To Stay

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