Nouriel Roubini's Worst Call Ever

Talk about laying your reputation on the line!

It takes serious guts to call a top in a nine-year bull market for gold, and a flair for controversy to do so while suggesting that those who think otherwise "delude themselves." That is precisely what upstart uber-economist Nouriel Roubini has done, but I predict he will find himself gobbling down a guru-sized slice of humble pie as subsequent chapters of gold's epic revaluation unfold.

Roubini gained an eager worldwide audience for his macroeconomic perspectives after correctly predicting the global financial crisis back in 2006. He continues to display a keen understanding of multiple aspects of our ongoing financial predicament -- some of which I have quoted myself. But veteran commodity expert Jim Rogers is "flabbergasted" by Roubini's declaration of a broader commodities bubble, observing that "for Mr. Roubini to talk about a bubble in commodities defies comprehension. It proves he does not understand markets."

Jim Rogers has been proving that he understands markets for decades. The Quantum Fund co-founder is an enduring fixture in the world of commodities, and investors even have access to an index that bears his name through the Market Vectors RVE Hard Assets Producers (NYSE: HAP  ) ETF (which features titans like ExxonMobil (NYSE: XOM  ) , Archer Daniels Midland (NYSE: ADM  ) , and PotashCorp (NYSE: POT  ) among its top holdings). If you're wondering which voice to heed when it comes to forecasting prices for commodities, I recommend listening to the voice of experience.

Rogers reiterated his call for at least $2,000 gold -- the price that I have been targeting publicly since 2007 -- before this cycle has run its course:

[I]t's very clear there is huge suspicion about paper money around the world. This suspicion is gathering steam. Governments are printing huge amounts of money. This has always led to higher prices. Maybe I am wrong and it's different this time. But I doubt it.

At the crossroads of countless bearish calls for gold by self-assured pundits and under-informed analysts lie the real victims of the resulting uncertainty: Fools like you. I can't help but wonder how many investors out there will now turn a blind eye to the rock-solid fundamental foundation for higher gold prices just because the venerable "Dr. Doom" has dismissed bullish gold projections as "nonsense." Before you heed Roubini's warnings, here are just a few points to consider:

  • During this current pause in gold's recent breakout move, reported bullion holdings in the SPDR Gold Shares (NYSE: GLD  ) ETF have recovered to near record levels at 1,134 tonnes. Investment demand continues to gain traction.
  • Barrick Gold (NYSE: ABX  ) points out that global mine production has declined 10% over the past decade, and that trend is forecasted to continue.

Now that we're clear on which side I'm taking in this faceoff between two prominent financial gurus, it's your turn to play favorites. Please vote in the Motley Poll and share your comments below.

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at CAPS lists 46 potential investments, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly in the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Silver Wheaton. The Motley Fool has a gilded disclosure policy.


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  • Report this Comment On January 04, 2010, at 10:10 AM, ashirek wrote:

    A similar thing happend back in the early 80's. I used to travel to Europe a lot. One of my clients told me "my son works for Deutsche Bank. He says gold is going to $1,000. It was, at the time, at about $750 and it never hit $1,000. What happened? Interest rates shot up. The dollar strengthened. The rush to gold turned around and many speculators rushed to the dollar. This will happen in the next 18-24 months.

  • Report this Comment On January 04, 2010, at 10:12 AM, galtline wrote:

    Could you point me to the interview or article that you're referring to (and specifically the "delude themselves" comment)? This is from the article that I read:

    "The recent rise in gold prices is only partially justified by fundamentals, and is in part a bubble that could easily go bust. Unless the world enters a period of high inflation or slips into a depression—both relatively low probability events at this point—there is little reason for gold to rise towards US$2000. Rather, its rise will be gradual and subject to significant risk of downside correction. Some diversification of gold in central bank and investor portfolios may make some sense, but not a flight out of dollars and into gold. The only scenario where gold should rapidly rise in value is one where fiat currencies are rapidly debased via inflation. That scenario may eventually materialize if large and monetized fiscal deficits persist for a long period of time; but overall, today there are more deflationary than inflationary forces in the global economy, as the slack in goods and the labor market is still rising."

    Although I did find this funny:

    " If you want to hedge against inflation, stock up on Spam or other canned food or buy futures on commodities that have more physical uses and consumer demand."

    I do hold both gold and silver (along with other investments), and have done quite well with them since I purchased them back in October... but I also frequent RGEMonitor (now Roubini.com).

  • Report this Comment On January 04, 2010, at 10:16 AM, TMFHousel wrote:

    Chris,

    In fairness, how is GLD's near record investment demand a catalyst for a "rock-solid fundamental foundation?" Wouldn't rock-solid fundamentals be found when investment demand was at an all-time low?

    Morgan

  • Report this Comment On January 04, 2010, at 10:18 AM, XMFSinchiruna wrote:

    Sure, it was here:

    http://wallstreetpit.com/11964-roubini-people-deluding-thems...

    "So we don’t have Armageddon; we don’t have inflation, so gold can maybe go slightly higher. But those people who delude themselves that gold can go to $1,500 or $2,000 are just talking nonsense. The fundamentals are not justified, and those people are just talking their books.”

  • Report this Comment On January 04, 2010, at 10:32 AM, JWBROAD wrote:

    I have 12% allocation of gold. I'm retired and have had gold in my portfolio since 2001. I have a sell order at $1050. I always have a sell order at 85% of the high closing price of gold. I'm going to make money no matter what. It is just about how much.

  • Report this Comment On January 04, 2010, at 10:46 AM, XMFSinchiruna wrote:

    TMFHousel,

    Fundamentals of gold refer to the macroeconomic drivers that generate investment demand ... they are not dictated by demand alone, but also by structural developments in paper currencies. The fact that retail investment demand remains strong despite an abrupt 10% retreat in gold prices from recent highs does indeed speak volumes.

    Please note: record reported holdings for GLD does not equate to a record high for gold investment demand. The salient point of my reference was GLD's relative holdings versus gold @ $1,220.

    In a word, your assumption that the fundamental picture correlates inversely with the scale of reported holdings by GLD is a false assumption. Gold remains absent from the portfolios of millions of unprotected investors, and the small scale of the gold market means that modest increases in investment demand equate to substantial increases in price.

    Happy New Year. :)

  • Report this Comment On January 04, 2010, at 10:48 AM, XMFSinchiruna wrote:

    ashirek,

    Please be sure you are familiar with the myriad ways in which our present predicament differs from the circumstances that were at play in 1980.

  • Report this Comment On January 04, 2010, at 11:03 AM, moredividends wrote:

    With respect,

    Roubini's worst call ever was his description of the market run which started in March of 2009 as a "sucker's rally." Now that the S&P is up over 67%, he has shown himself to be a "one-hit-wonder" just like Elaine Garzarelli, Abbie Joseph Cohen, Joe Granville and so many other market timers and economists before him.

  • Report this Comment On January 04, 2010, at 11:13 AM, XMFSinchiruna wrote:

    moredividends,

    One might find it incongruous for me to come to Mr. Roubini's defense in response to your comment above, but I can find no fault in pointing out a glaring disconnect between rip-roaring market exuberance and a persistently troublesome fundamental landscape for the domestic economy.

    More time is required before passing judgement upon his characterization of the equity rally. Roubini is a bright guy and a knowledgeable economist. I happen to think he misunderstands the commodity markets and in particular the outlook for gold, but I continue to recognize the value of his macroeconomic perspective overall.

  • Report this Comment On January 04, 2010, at 11:46 AM, AvianFlu wrote:

    Sinch:

    I agree. Roubini is no Joe Granville.

    But clearly he is out to lunch on the topic of the relationship between increases in the money supply and the nominal price of gold.

  • Report this Comment On January 04, 2010, at 1:00 PM, Fool wrote:

    Roubini is right that the world will end, and soon. Equities are dramatically overpriced - the fed has no clue how to withdraw the stimulus and we'll end up with rither a double dip or hyper inflation. Either of these scenarios is strong for gold - even the double dip scenario because people will realize the governments will be tempted to keep printing money, even if no one is spending any.

  • Report this Comment On January 04, 2010, at 1:21 PM, ByrneShill wrote:

    I agree with roubini. The problem with gold is how useless it is. It has value because people think it has value, nothing more. On the other hand, oil, copper, platinum or steel have values in themselves because they can be used to "make stuff". Even diamond and silver have intrinsic values.

    Gold is the purest speculative instrument that can exist. So, yeah, it can go to 2000$, maybe even 3000$, or maybe more, just like revenuless dot-coms had sky-high valuations pre-2000. But the higher gold gets, the more it proves irrationnal exuberance.

    Personnaly I look at gold the same way I look at an Bobba Fett figurine in its original package. It's completely useless, but some people (who never intend to use it for anything) give it some value. One day people will figure out that the only thing you can do with the figurine is give it to your nephew to play with it, and the only thing you can do with gold is make shiny jewels. Then both prices will plummet.

  • Report this Comment On January 04, 2010, at 3:20 PM, chakie wrote:

    I've read all of the books by the following authors' - Dent, Schiff,Rogers,Talbot and I respect them all. It was their willingness to share that kept me sane during the market meltdown. From what I've read the camps seem to be splitting into the following - Dent/Roubini= strong dollar weak gold vs. Schiff/Rogers,Talbot=weak dollar strong gold and I've seen a bit of both. I was actually just pondering this this weekend as to whose side I should take and at this point I'm trying to say open minded to both sides. In fact much to my surprise in Dent's most recent book he called for a strong dollar and week gold at the end of 09 and into 10. Hmmm... what to do?

  • Report this Comment On January 04, 2010, at 5:46 PM, davehaddad wrote:

    I agree with roubini to, his timing may be off but his idea is right, the economy is not so sound, the market shot up higher than it should have.

    Gold has no real value, look at the gold prices in the 80's they did the same thing and look where they went.

    I think we are in for an overall correction in the next year.

  • Report this Comment On January 04, 2010, at 7:22 PM, UltraContrarian wrote:

    Sinch - Is Roubini an "upstart" or is he "venerable"? Please pick one and stick with it.

  • Report this Comment On January 04, 2010, at 8:51 PM, langco1 wrote:

    roubini is a jackass same as always..even the dead knew the financials were finished .no one knew the extent of the damage would be.the damage was mostly caused by another idiot greenspan being fooled by wall street into lowering interest rates to far...

  • Report this Comment On January 04, 2010, at 9:07 PM, XMFSinchiruna wrote:

    Ultra - It's simple ... as an economist he is venerable. As an uber-economist he is but an upstart. :)

  • Report this Comment On January 04, 2010, at 10:40 PM, DaytonFlyers wrote:

    I eat pieces of gold for breakfast

  • Report this Comment On January 04, 2010, at 10:51 PM, TMT33 wrote:

    I don't have a particularly strong opinion on where gold is going but I think it's important to note that those expecting strong inflation down the road may be off base. One thing to note right now is that while the Fed is expanding liquidity, the banks aren't lending and consumers don;t have borrowing capacity. Consequently the normal impact is not being experienced. In addition the develoment of economies in China and India for example are keeping a lid on wage inflation along with the unemployment rate. I'm on the fence on this, I don't think it's a slam dunk in either direction.

  • Report this Comment On January 05, 2010, at 2:21 AM, DocMonsta wrote:

    it is all so Foolishly simple: If I start buying gold, it will drop faster than a homemade souffle' and if I don't it will continue to shoot up unrestrained. Isn't that how it works?

  • Report this Comment On January 05, 2010, at 8:09 AM, TMFBent wrote:

    Laying his reputation on the line? Only to gold bugs who refuse to brook any possibility that their favorite precious metal might possibly be in bubble territory.

    Gold might hit $2k, but that doesn't mean it's worth it, just as those internet stocks weren't worth what people were paying for them when the hot predictos of the time kept ratcheting up price targets and playing on an ever-increasing public mania.

    Gold is riding an incredible wave of paranoia right now. People like NR are simply applying the shoeshine-boy rule.

    Sj

  • Report this Comment On January 05, 2010, at 8:24 AM, XMFSinchiruna wrote:

    TMFBent,

    So you're suggesting that concern over the fiscal state of our nation represents paranoia when unprecedented fiscal interventions are paired with quantitative easing and deep deficits for as far as the eye can see? Can justifiable concern over the impact of a deleveraging event in a global derivatives market that is several times the scale of global GDP be genuinely characterized in such a manner?

    The USD might hit 80 on the USDX, but that doesn't mean it's worth it.

    As for the term gold bug, I thought we might agree to lay that one to rest:

    http://www.fool.com/investing/general/2009/12/30/the-best-st...

    "Speaking of lunacy, and in the interest of intelligent discourse, could we consider burying the term "gold bug" once and for all as we approach the new year? I refute the label largely because of the illogical and derogatory associations that it conjures. From my background in anthropology, I know that prevailing attitudes are fluid over time, and my calls for $2,000 gold and $50 silver are no longer met with the same degree of dismissive incredulity as they were when I issued the very same projections back in 2007."

  • Report this Comment On January 05, 2010, at 8:34 AM, catoismymotor wrote:

    Nourile Roubini? That name sounds like it belongs to a Vaudeville magician.

  • Report this Comment On January 05, 2010, at 8:42 AM, jesvlim wrote:

    Both are right and both are wrong. It is just a matter of timing.

    Gold is mainly determined by inflation and US$. When the US economy is flushed with money supply and interest rate at almost zero like now, US$ loses its value while Gold rises in value. This is short term, maybe within 3 to 5 years, this trend will continue, as the economy needs time to rebuild and recharge.

    Now as the economy gradually recovers as it surely would in any capitalist system, the most valuable assets will no longer be gold but equities as profits rises with the awakened economy.

    So you see gold will rise and fall. It is the horizon you should be questioning. Both NR and Rogers are right and wrong at the same time.

  • Report this Comment On January 05, 2010, at 9:01 AM, starbucks4ever wrote:

    A rare case when I agree with Roubini.

  • Report this Comment On January 05, 2010, at 9:26 AM, DONESONZ wrote:

    Fiats are toast.

  • Report this Comment On January 05, 2010, at 9:31 AM, catoismymotor wrote:

    Fiat makes not so good cars. But they own Ferrari I'm willing to look the other way. :)

  • Report this Comment On January 05, 2010, at 12:18 PM, Vate wrote:

    News flash: nobody consistently predicts anything correctly. 100 economists got it wrong, Roubini got it right, once. So he gets a good name and capitalizes on it. Maybe he's right about gold, maybe not. Who cares? If you listen to any one economist or watch only one predictive measurement, you'll get what you deserve. This kind of ridiculous pseudo-article would never have seen the light of day on Motley Fool 5 years ago, but it's hard to drum up new business talking about index funds and fundamentals of good investment.

  • Report this Comment On January 05, 2010, at 3:56 PM, ikkyu2 wrote:

    I think Roubini's right, at least over the next 2 years. Quantitative easing will pretty soon stop and be reversed; this process will contract M3; and as M3 contracts, the price of gold will go down in lock step.

  • Report this Comment On January 05, 2010, at 5:21 PM, 7351jay wrote:

    All I know is the fact that if we stopped mining gold, there would be enough above ground to last 30 to 40 years. If we did the same with Pt there is enough above ground metal to last 2 to 3 years!

  • Report this Comment On January 05, 2010, at 8:50 PM, FoolishSeattle wrote:

    If gold goes to $2000 because the world goes to he11, then I'll be so glad I didn't buy any because that means I can use the cash hoard I kept on the sidelines for the cheap stock valuations that will be available which will make much better long-term investments.

  • Report this Comment On January 05, 2010, at 8:54 PM, TMFHousel wrote:

    CapitalV,

    "If gold goes to $2000 because the world goes to he11, then I'll be so glad I didn't buy any because that means I can use the cash hoard I kept on the sidelines for the cheap stock valuations that will be available which will make much better long-term investments."

    That's the smartest thing I've heard in a long, long, time. Bravo.

    -Morgan

  • Report this Comment On January 05, 2010, at 8:58 PM, goalie37 wrote:

    Gold will rise to $2000 when the hedge funds decide that gold is the next place for them to make a bubble.

  • Report this Comment On January 06, 2010, at 1:18 AM, jdfarrell45 wrote:

    better gold performance, with silver, $80-100/oz by the end of 2010. get your physical silver and hold it!!

  • Report this Comment On January 06, 2010, at 2:46 PM, XMFSinchiruna wrote:

    TMFHousel,

    "That's the smartest thing I've heard in a long, long, time. Bravo."

    Honestly, Morgan? Are you advocating long-term USD cash holdings over gold?

    By all means, hoard cash USD for the next several years if you choose. And I'll remain long gold and silver miners during the remainder of gold's ascent. At $2,000 gold, let's compare notes and see who's happier with their strategy.

  • Report this Comment On January 06, 2010, at 4:59 PM, rfaramir wrote:

    People hating gold because it just sits there unproductively have it wrong. It sits there unperturbed by the vast printing of fiat currencies. It isn't really an investment, like in the stock of a company which actually creates wealth, but it is the next best thing: a store of wealth which does not lose value when my government prints more dollars (or my bank fractional-reserve-leverages my deposited dollars), because more of it cannot be printed. A little each year gets mined, a tiny bit gets used industrially, but basically its intrinsic value is unchanged.

    It's RELATIVE value, in any currency, changes depending on the corruption of the fiat currency you measure it with, but that's not gold's problem (nor the gold investor's).

    For investing, I prefer stocks of companies that create wealth. For a cash holding or rainy day fund convertible at need into other things, I prefer gold or silver to any currency at the mercy of the need of government to monetize its ballooning debt.

  • Report this Comment On January 06, 2010, at 5:12 PM, TMFHousel wrote:

    Chris,

    "Honestly, Morgan? Are you advocating long-term USD cash holdings over gold?"

    I don't know where you found the words "long-term" in relation to holding USD. The point I liked was that if gold goes to $2k, the rest of the market will undoubtedly soil itself, which will present opportunities for far superior long-term investments. March 2009, in other words, where twenty-baggers could be found in the wake of panic.

    "At $2,000 gold, let's compare notes and see who's happier with their strategy."

    With due respect, you arrogance and egotism annoys people when you say things like that.

  • Report this Comment On January 06, 2010, at 7:37 PM, RaulChapin wrote:

    rfaramir:

    BRAVO!!!!!!!

    Your point is basically all there is to the gold subject for the average investor.

    For a few investors there is also buying gold and gold miners as providers of insurance, the way you would have bought say AIG in the years where it was a steady safe investment, similarly you would need to be careful not to be holding too much Gold if it suddenly losses favour to say Copper or even Oil which would be likely in the event of a drastic economic rebound.

  • Report this Comment On January 06, 2010, at 7:54 PM, XMFSinchiruna wrote:

    Morgan,

    I'm glad you clarified. Based upon your comment, I'm sure you'll understand how I misconstrued your intent.

    Let's continue to debate ideas on the merits, and not let the discussion get personal.

    Here's where we appear to agree: I too may be looking for historic bargains in the Dow somewhere in the neighborhood of $2,000 gold.

    Fool on!

  • Report this Comment On January 06, 2010, at 9:09 PM, camistocks wrote:

    I will never forget when Roubini said that he would tell us the exact moment to reenter the stock market. What a generous and good man. I'm still waiting... (for his call that is)

    As for gold, what if the Asian central banks decide to diversify from their huge dollar holdings and hold equal amounts of reserves in gold like the western central banks (50-80% of reserves in gold vs only 2% for China for example). Let's not forget that back in the summer when the IMF put out 200t of gold for sale it was inhaled by the Indian central bank in one toke...

    I have read that if the gold standard would be reintroduced, gold would have to be valued at around $6000. Currently the USA is still valuing their gold at $44 an ounce. Well it would certainly help their balance sheet...

    $10'000 for gold is not as far away as it may seem. (and that is a minimum price. The bubble price will be probably much higher...)

  • Report this Comment On January 06, 2010, at 9:56 PM, vgaymer wrote:

    ByrneShill wrote:

    "I agree with roubini. The problem with gold is how useless it is. It has value because people think it has value, nothing more. On the other hand, oil, copper, platinum or steel have values in themselves because they can be used to "make stuff". Even diamond and silver have intrinsic values. ..."

    THANK you, I couldn't have said it better myself.... and I won't try.

    Cheers,

    G

  • Report this Comment On January 06, 2010, at 10:00 PM, jennifergmd wrote:

    The funny thing regarding the gold debate- people against gold don't understand its importance globally. How can a country (like the U.S.) base its currency (which is a government sponsered monterary substitute) on gold for so many years (until 1971) and then have people say it has no intrinsic value or is speculative. Why do we have Fort Knox? Why would someone feel screwed if they got 14K gold necklace insead of 24k? Why are countries and central banks buying gold in record amounts? Why is there a multibillion dollar industry to mine gold? Why would my wife get pissed if i bought her a silver necklace instead of gold?

    Why did we have a gold rush way-back-when? What drove that? That it was just pretty to look at? The gold issue will approach close to a zero sum game at some point. Those who don't have it and are wrong will have to go to the back of the line and wonder why and when they became a little lemming walking over the cliff. By the way- i am a gold bull.....

  • Report this Comment On January 06, 2010, at 10:03 PM, jennifergmd wrote:

    Wake up guys.....I love these dips in gold and silver- cause I just keep loading up. I am ok being "wrong" about gold and silver and watching my "savings account" keep appreciating....Folks- the dollar is falling , falling.....It may rise for a bit but the rise in the stock market in nominal terms is offset by the falling dollar.....

  • Report this Comment On January 07, 2010, at 2:09 PM, bzhayes wrote:

    TMFSinchiruna said:

    "Here's where we appear to agree: I too may be looking for historic bargains in the Dow somewhere in the neighborhood of $2,000 gold."

    I hope we can all agree on that. The question is, what is your contingency for $500 gold? Many of us gold doubters believe it is *possible* for momentum to make the gold bubble even larger.

  • Report this Comment On January 07, 2010, at 4:00 PM, XMFSinchiruna wrote:

    bzhayes,

    I personally have no such contingency. There is no gold bubble. in my opinion, those who perceive a bubble do not understand what is transpiring, nor the degree of impairment underlying the USD and other structurally broken fiats. Alternatively (or concurrently), they may not understand the dynamics of the gold market itself.

    Those attempting to comprehend the bull market for gold and silver through Keynesian goggles might consider taking those goggles off for a moment and stepping outside of long-held presumptions about currencies, debt, inflation, etc.. The events of the past few years necessitate a paradigm shift for those who didn't see it coming. If gold's ascent doesn't make sense within an individual's existing financial paradigm, I respectfully suggest a fresh evaluation of that paradigm in light of everything that has come to be known since the onset of this crisis. I'm not advocating a shift to the Austrian school, but simply a commitment to entertaining the possibility that long-held presumptions regarding economic theory have been significantly challenged by recent events.

    Nothing has been fixed since this crisis began. Derviatves still swing overhead like a giant wrecking ball. Banks appear solvent only due to deceptive accounting practices that disguise the true nature of derivatives exposure. The government backstop will only grow larger still, and budget shortfalls will run into a brick wall of disinterest on the part of foreign creditors. And yet, it seems that most Americans remain swept up in excitement over an illusory recovery myth perpetrated by government and the financial media alike.

    America, sadly, has gone broke. The long-term downward trajectory of the USD and other impaired fiat currencies is etched in stone. I take no pleasure in stating this position, but this is the conclusion I have drawn. The equity rally has been a savior for the masses who lost so much during the first round of deleveraging ... I recommend reducing exposure to most domestic equities at this stage and positioning oneself for the next phase of the USD's devaluation.

  • Report this Comment On January 08, 2010, at 11:02 AM, halfhedge wrote:

    Should you really put all commodities into the same basket? Gold has a specific function as a hedge against inflation although it does have industrial uses. In constrast raw materials such as oil or aluminium are used only as inputs to our output (other than speculation by traders) - they are not stored in the vaults of central banks around the world.

    I agree with Roubini on gold, but not on other raw materials.

  • Report this Comment On January 08, 2010, at 11:17 AM, shamtrader49 wrote:

    Jim Rogers has flip flopped on Gold prices at least three times in the past year. Last February he was widely quoted on calling for a correction back towards 700.00. At this point Gold looks to move higher but not without some pullbacks. A sharp selloff in US Bonds is whats needed to get to the next level (ie 1500.00) this will get both the inflation scenario and the Gold is a currency stories alined. Most believe that higher US rates equal a higher dollar. I;m not so sure as the US has trouble with debt issuance and too much supply could be very negative for the USD. Only time will tell

  • Report this Comment On January 08, 2010, at 11:43 AM, CoyoteMoney wrote:

    Gold is an obsession. It can never be 'fairly' valued as demand cannot be measured in terms of physical need. The demand for gold has much more to do with the level of fear investors are feeling than with any concievable fundamentals.

    I can look a company's balance sheet, listen to its conference calls, chat with fellow Fools and decide on the basis of facts whether its current stock price is fair or not.

    Compare that to trying to project inflation, US government policy changes, and the reserve needs of opaque central banks in Asia. All of those things will affect the future price of gold.

    Those of us who bought healthy companies in the spring of 2009 at bargain prices are already reaping the gains. Buying gold now is betting on the future $2k price which in turn is betting on future economic conditions and future investor sentiment. That's a lot of "ifs".

  • Report this Comment On January 08, 2010, at 11:54 AM, nackl19 wrote:

    You have to be a real sharp investor to invest in gold. If you bought gold at its high in 1980, it took more than 27 years to break even. If you left the same amount in a money market fund, it would be more than 3 and 1/2 times more valuable than the gold price today. This is just a timing illustration, but it shows that you have to know when to get in or out of gold. I sure don't. I have never owned gold, but I have owned various mining companies thruout my investment life. I respect Jim Rogers, but I'm a little wary of his call. You never know when history will repeat itself.

  • Report this Comment On January 08, 2010, at 12:04 PM, jlyer wrote:

    Personally, I think they are both right -- but one of them has their time range wrong.

    You see...I agree 100% that huge inflation is coming, BUT...I think we'll have deflation first. As long as bank lending is down, the Feds demand that banks have more capital to back their loan, and customers are spending less in order to pay down debt, deflation will take place regardless of how much money the Feds attempt to pump into the system. Apart from personally handing dollars out to your average man on the street, I doubt the liquidity spigot will really trickle down until after deflation runs its course and people's savings are restored.

    What does this all mean -- I think gold will go down this year. In a year and half to 2 years time, it will go up again, and I wouldn't be surprised to see $2000 gold. You see, the Fed's action won't have its true impact until a couple of years after the action. There is some lag between their action and the impact.

  • Report this Comment On January 08, 2010, at 12:17 PM, baekeland108 wrote:

    Never chase the dog that has been beaten "almost" to death.

  • Report this Comment On January 08, 2010, at 12:21 PM, petertsmith wrote:

    The poll is incomplete - options for "both" or "neither" are needed.

    Given the current rate of hype, rumors and "fear" (e.g. Glenn Beck?), speculation could easily drive prices within spitting distance of $2K/oz. All the same, if you didn't jump in back around the time it was $300/oz, you're just like the schmucks who panic'd and bought houses in 2007 (hoping to flip it in '08?).

  • Report this Comment On January 08, 2010, at 1:00 PM, 123scout wrote:

    Both of these guys will claim victory in the next 12- 18 months as we seen 30% or more swings in gold, but the end result is dead money for non traders. If we have sustained inflation interest rates will go up stopping (at a point) the inflation. If we have the total colapse of the dollar that could make gold again the vehicle for trade we're all toast anyway. Don't forget if gold is the only means for trade you run into the Montana rule---- the exchange rate for any amount of gold is 180 grains of lead delivered at 3100 feet per second. Try not to take yourself so seriously.

  • Report this Comment On January 08, 2010, at 1:45 PM, peter941 wrote:

    In 2006 everyone was bullish, companies were expanding, and employment was booming. Most everyone did NOT see anything wrong with the supply of money and it was around this time that even the "manicurists making minimum wage" started jumping on the housing gravy train. The only reason there appears to be recovery going on now is the market, which fails to scratch the surface. People with jobs started spending some money but there is no fundamental recovery in industry. The recovery is just numbers following numbers which by now everyone should realize is not necessary connected to anything. Enron got away with this for a long time and so did the housing developers.

  • Report this Comment On January 08, 2010, at 2:35 PM, rmadler wrote:

    - The U.S. Government is broke. It continues to print its own money because the world still accepts it. The world is indeed FOOLish, still swallowing the "full faith and credit of the US Government." Every single society that went out of control like ours has (consumption, corruption, debt, spending, and keeping the printing presses hot - what Wayne Dyer used to call "The Psychology of More") ended in runaway inflation and eventual disaster. Since this one would of course become the granddaddy of them all - the "Great American Disaster" (reminding me of an old hamburger joint in London) - the timing of its actual occurrence is guaranteed to be not only unpredictable but a further, much more gigantic shock to the economically uneducated population.

    - The national debt is way too far gone to think about its ever being rescued from going over the falls. And everything occurring in this environment points to the falls being a lot higher than Niagara and moving a lot faster. The people with full faith in the currency of the United States are going to be left with a lot of Ameros - or trillers - or whatever's next... The only question remaining is when it will hit the fan - there are a lot of moving parts in this soup. Every one of these banks and insurance companies which have been so creative at becoming too big to fail...they are all so far under water that our country would be non-existent if the truth was ever revealed (swallowed up in that black hole we've been worried about - or perhaps that's what the 12/21/12 end game is going to be all about...). Either way, when it hits the fan, gold will be much closer to $10,000 than to $2,000 (see the comprehensive book "Buy Gold Now," written by a retirement fund portfolio manager). This time is NOT different. This time it's been leveraged up to "too big to fail" - and it's about to...

    - We continue to pay China and our other creditors increasingly gigantic amounts of dollars in interest alone - with dollars that we continue to print like they're toilet paper... (we should just discontinue our orders of toilet paper!)... The world is ONLY held captive by our consumption...but the more we print, the less likely they are to continue the game. Nevertheless, we continue to print and spend more; Washington continues to churn and it’s still a great country. In the meantime, five or six countries in the Middle East are meeting to devise their own oil-backed currency; the signs are indeed everywhere now - not just with the "gold bugs." And when this loan gets called, no one will be there to bail us out - not even the government's Wall Street buddies. $10,000 gold and hola, Amero.

    3 to 5 years - hopefully not sooner.

    Peter Schiff couldn't have said it better.

  • Report this Comment On January 08, 2010, at 2:52 PM, XMFSinchiruna wrote:

    Wow, a lot of people still misunderstand gold in the most fundamental ways imaginable. Given that we are nine-years into the metal's secular bull market, I find this remarkable.

    CoyoteMoney, gold may be an obsession for some, but for the most part I see that presumption ascribed to all gold investors in a way that defies logic. While I am heavily invested in gold equities, and write about related investments for a living, it is painstaking macroeconomic analysis that continues to support my expectation for higher prices, and nothing even remotely resembling obsession is at play. I find the vast majority of investors with whom I maintain a dialogue presenting a similar, well-researched rationale for their investment exposure.

    halfhedge, every commodity is best approached as a separate entity. Due to its role as a currency, gold is certainly in a category of its own. My aim was not to lump Roubini's dual calls regarding commodities at large and gold specifically into a single statement, but rather to point to the relevant philosophical disconnect between the outlooks of these two economists.

    nackl19, Anyone who bought gold at the 1980 peak must have really had some extraordinary expectations, as the fundamental basis for sustained higher prices simply did not exist as they do today. As you suggest, if one can arbitrarily choose a starting point to illustrate yields, then I can just as easily counter with a starting point of $250 gold a decade ago and point to gold's incredible historical yield. Yes, it takes a sharp investor to invest in gold. It also takes patience and nerves of steel to withstand its ruthless volatility. But under the macroeconomic circumstances, some exposure is highly recommended to those who are up to the challenge.

    Fool,

    Volcker had the benefit of an otherwise strong underlying economy when he was able to raise interest rates sufficiently to curtail inflation. Any material interest rate increases this time around would stop any hopes of recovery dead in their tracks, and every ounce of fiscal intervention over the recent past has indicated an unwavering preference for propping up the economy over fiscal solvency. To suggest such an easy fix might well underestimate the scale of our present predicament. An any event, the inflation that investors need to remain focused upon is a currency event. Devaluation through quantitative easing and unserviceable levels of debt is itself a form of inflation, and this can occur even concurrently with perceived deflation as seen through some asset prices.

    As for this one: "The problem with gold is how useless it is. It has value because people think it has value, nothing more." Insert the USD in gold's place in that sentence, and substitute "people think" with "the government says" it has value.

    One major obstacle to people understanding gold is a failure to understand the nature of fiat money. Ask yourselves ... what is a dollar? [I still find some who are unaware that the dollar is issued by the Federal Reserve, and still more who think that the Federal Reserve is an agency of the U.S. government]. After that, ask yourself what scale of indebtedness and structural impairment is baked into the U.S. dollar. Do you understand the nature and the scale of the threat from derivatives?

    http://www.fool.com/investing/general/2009/09/23/biggest-mar...

    Gold's ascent is not based upon idle speculation ... there are concrete reasons why gold as a currency is once again gaining favor over its modern paper replacement. It is not about fear, although that can be a factor for some. It is not solely about inflation, which in any event is perhaps the most misunderstood topic of all.

    There are few sources of insight into the nature of money as crisp and persistently relevant as America's founding fathers:

    http://www.fool.com/investing/international/2009/04/01/an-op...

    George Washington:

    "Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice."

    Thomas Jefferson:

    "It is from Great Britain we copy the idea of giving paper in exchange for discounted bills: and while we have derived from that country some good principles of government and legislation, we unfortunately run into the most servile imitation of all her practices, ruinous as they prove to her, and with the gulph yawning before us into which those very practices are precipitating her. The unlimited emission of bank-paper has banished all her specie, and is now, by a depreciation acknowledged by her own statesmen, carrying her rapidly to bankruptcy, as it did France, as it did us, and will do us again, and every country permitting paper to be circulated, other than that by public authority, rigorously limited to the just measure for circulation."

    I offer these quotes not to propose a return to a gold-backed monetary standard, but merely to illuminate the deep well of historical experience with experiments in unbacked fiat currency that have gone dramatically afoul.

    Increasingly, the philosophical divide that separates gold investors from gold's detractors relates to one's over-arching financial paradigm. Gold will probably never make a lick of sense to a card-carrying Keynesian like Krugman, with the result that we will likely see this vociferous debate continuing throughout the remainder of gold's run (no matter how high that goes). That in itself is indicative of how inappropriate any talk of a bubble is with respect to gold ... unlike the housing boom we may never approach a point where literally everyone views gold as a must-have investment. Its popularity has increased, to be sure, but we are light years away from the point where every individual investor is coveting the stuff the way American's piled into real estate with "easy money" before that leveraged bubble burst.

    The first step to gaining a true understanding of the gold market might just be to recognize the need for something of a paradigm shift.

  • Report this Comment On January 08, 2010, at 2:57 PM, johnnytwodog wrote:

    I do not think of gold as a commodity. Oil and pork bellies are commodities. Gold is just something stored in a safe, and is about as likely to increase in value as everything else that stays in the safe.

    If increasing the money supply drives inflation any or all other commodities will have higher returns than gold.

  • Report this Comment On January 08, 2010, at 3:08 PM, Doghair101 wrote:

    Have no idea where Gold will go from here...BUT, I remember in a terrible drouth year when Corn got skyhigh reading a cartoon that said...When your barber buys corn futures it may just be time for you to sell....it turned out it was true it was the high....

  • Report this Comment On January 08, 2010, at 3:12 PM, XMFSinchiruna wrote:

    johnnytwodog,

    I don't view gold as a commodity either. Gold is money.

    Gold is the ultimate store of value. Unlike any fiat-denominated pieces of paper in a safe, gold retains purchasing power even as impaired currencies crumble around it.

    I don't recommend sticking pork bellies into a safe ... yuck! :)

    For increasing value, investors look to mining equities for leverage to gold price increases over the long-term.

    If you're looking for the best of both world's -- enduring value plus strong industrial demand with an incredibly tight supply -- I suggest a hard look at silver.

    http://www.fool.com/investing/general/2009/12/30/the-best-st...

  • Report this Comment On January 08, 2010, at 3:25 PM, TMFHousel wrote:

    "Gold is the ultimate store of value. Unlike any fiat-denominated pieces of paper in a safe, gold retains purchasing power even as impaired currencies crumble around it."

    But this is only true if it's purchased at the right price. There are multi-decade periods when gold not only failed to retain its purchasing power, but eroded it heavily.

    Yes, I know .. I'm cherry-picking 1980, and you can just as easily cherry-pick 2001. I hear you.

    The question us sideline doubters have is whether today's market -- after 9 years of spectacular gains, record-setting prices amid panic, and celebrity spokesmen hyping the frenzy -- is more analogous to 1980, or 2001. I'm not saying today's market is directly similar to either date. But which side we're closer to is quite obvious.

  • Report this Comment On January 08, 2010, at 3:43 PM, Harley117 wrote:

    I think Roubini's wrost call was calling for the federal government to nationalize the banks last spring. I also agree with moredividends that he is a one time wonder.

  • Report this Comment On January 08, 2010, at 4:41 PM, bobmeinet wrote:

    Quote: "During this current pause in gold's recent breakout move, reported bullion holdings in the SPDR Gold Shares (NYSE: GLD) ETF have recovered to near record levels at 1,134 tonnes."

    Seems to me the price of gold should increase if 1,134 tonnes were bought and put into storage. Doesn't that mean that investors rushing to buy GLD creates an upward spiral? And conversely, selling GLD would create a downward spiral. Sounds and smells like tulips to me.

    Bob Fisher

  • Report this Comment On January 08, 2010, at 7:00 PM, GRAPPLER1972 wrote:

    If you want a really sound Gold Copper and Moliblium investment you should check out Northern Dynasty symbol NAK.The value of the assets owned and yet to be mined are probably the greatest "new" find in the last 50 years.A sure winner long term.Majority owned by major mining companies.Extremely well capitalized.

  • Report this Comment On January 08, 2010, at 7:10 PM, jastds123 wrote:

    Re the "Montana rule": My investments in steel (shaped into a projectile-launching device, preferably hand-held) and lead/copper alloys (the projectiles launched by the aforementioned devices) have returned over 100% in the last year. They are likewise kept in a safe, but have the added benefit of usability in food procurement and self-defense. Perhaps this could be a better investment than raw metal commodities, whatever their placement on the periodic table?

  • Report this Comment On January 08, 2010, at 8:27 PM, peters46 wrote:

    I see no reason to state that commodities will follow gold up or down. In fact, with shortages of real commodities causing their prices to go up, I expect many to disgorge their hordes of gold to get what commodities they need, thus creating an oversupply/devaluation of gold.

  • Report this Comment On January 08, 2010, at 10:52 PM, babaoreilley wrote:

    TMF,

    Very good commentary, thanks. What is your view on the value of shares of stock of non-commodity related companies? If the dollar buy fewer ounces of gold, would it not also buy fewer shares of, say, GE? And, therefore, shouldn't GE's share price also rise? To what extent can non-commodity stocks be held as a hedge against inflation, realizing that if higher interest rates accompany the rise in the POG, the discounted price of the earnings of all companies will suffer.

  • Report this Comment On January 08, 2010, at 11:21 PM, XMFSinchiruna wrote:

    TMFHousel,

    "The question us sideline doubters have is whether today's market -- after 9 years of spectacular gains, record-setting prices amid panic, and celebrity spokesmen hyping the frenzy -- is more analogous to 1980, or 2001. I'm not saying today's market is directly similar to either date. But which side we're closer to is quite obvious."

    Which side we're closer is obvious to me, too ... but I think we're talking about different sides. :) Although I maintain a conservative target of $2,000, in all likelihood gold will continue substantially higher before this is all said and done. I submit that we have yet to hit the halfway point in terms of nominal price.

    babaoreilly,

    Yes, it is entirely plausible to presume that many equities will see nominal price gains in an inflationary environment. The question is what those gains translate to in real terms as the underlying currency loses purchasing power.

  • Report this Comment On January 09, 2010, at 12:57 AM, WishToRetire2 wrote:

    Meanwhile you might find the recent antics of the Canadian mint amusing:

    http://www.cbc.ca/canada/ottawa/story/2009/12/21/mint-missin...

    "gold valued at the time at $15.3 million that was missing from its vaults on Sussex Drive in Ottawa might have been stolen...accounting reviews found that $8 million worth was simply miscounted, while more than $3 million worth was sold off as slag - at a fraction of its worth. Another $1.6 million worth was found in buildings and machinery in the mint."

  • Report this Comment On January 09, 2010, at 2:12 AM, SoaringBob wrote:

    To me the bottom line is gold has long been a store of value around the world, and its value is determined by supply and demand, like any other free market commodity. What keeps it moving up and down the most is the inflation/deflation cycle (two steps forward, one step back).

    Contrary to what others have said, it does have vital industrial uses, especially in the electronic connector industry. (Just take a look at the electronics in your airbag system, and tell me those gold plated contacts could be trusted if replaced with tarnished beryllium copper!)

    What gold bugs are interested in is protecting their a$$ests from inflation by holding on to the yellow stuff. Why? Well, you'll have to read an old classic "You Can Profit from a Monetary Crisis" by Harry Browne, for the answer to that question, if the answer isn't obvious, as I'm not going into detail.

    Is gold a good "investment" for the long haul? Not to me, as, on average, all it does is keep up with inflation. Yes, it falls behind inflation, sometimes for decades, then over corrects to the upside, but it's much easier to stay ahead of inflation and taxes by buying good stocks.

    Where is gold going from here? My guess is there is more upside movement coming, as those trillions in obama funny money being injected into the economy will be watering down circulating dollars eventually! Dr. Ben thinks he can sneak some of them back out of the banks' reserve accounts and burn them (deflation), but I wouldn't bet on that happening with all the trillions they've spread around elsewhere. So for now I will be treating gold as just another undervalued stock worthy of a small percentage of my investment funds, as I think it has more upside potential. I certainly won't be betting the farm!

    My view of Roubini is he is just another socialist Keynesian idiot with a lucky guess or two under his belt, which elevated him to guru status for the time being. Eventually, he'll be moving in next door to Joe Granville!

  • Report this Comment On January 09, 2010, at 6:22 AM, XMFSinchiruna wrote:

    If you enjoyed this piece, here is some further reading.

    The Best Stocks for 2010: Silver Wheaton:

    http://www.fool.com/investing/general/2009/12/30/the-best-st...

    The Most Overlooked Story of 2009:

    http://www.fool.com/investing/international/2010/01/04/the-m...

    Not Everyone is Running Away from Gold

    http://www.fool.com/investing/general/2009/12/16/not-everyon...

    Gold Overload

    http://www.fool.com/investing/general/2009/10/12/gold-overlo...

    Enjoy your weekend!

  • Report this Comment On January 09, 2010, at 11:39 PM, m0j0m0j0 wrote:

    one of the advantages of being old is you have seen this before nixon took the dollar off gold in the80's gold hit $800 then dropped to about $250 and stayed in that neighborhood for 30 years 3x $800 is $2400 it has to hit $2400 just to break even oil was 35 cents it's now $80 was $150 tell me again how great gold is as an investment

  • Report this Comment On January 10, 2010, at 4:59 AM, jwiit wrote:

    Gold should not be viewed as an investment but as a currency. Its value varies in each countries'

    currency. An oz of gold is worth trillions of Zimbabwe dollars.

    To say that gold is useless is hopelessly naive. You obviously have no clue what goes into electronic circuits. And would you wear jewelry made of dollars?

    Most western currencies are fiat and will fail soon.

    Many of you act like this is a sporting event and take sides for or against gold. Wake up! the dollar is worthless and your savings will be wiped out! How can you not understand that printing more paper dilutes the value of our currency!

    When the dollar goes down 25% and your stocks go up 25%, you have not made any profit!

  • Report this Comment On January 10, 2010, at 5:44 AM, bluebare wrote:

    Random musings on the future of the dollar and gold:

    Ag positions: SYT, RAH, NEOG

    Lithium and Cobalt positions: CGSH, SQM

    Copper positions: FSIN, SLT, TGB

    Gold positions: GBG. GTU

    Platinum: PGM

    Silver position: FRMSF

    Sugar positions: SGG, IPSU

    Oil positions: LPIH, PDS, TRMA

    Nickel position: NILSY

    Uranium position: PALAF

    Water positions: SBS, HYFXF

  • Report this Comment On January 10, 2010, at 8:42 AM, rmadler wrote:

    Thank you, jwiit. Pretty obvious which currency is the best to hold. Silver even better...

  • Report this Comment On January 11, 2010, at 4:30 PM, alaska70 wrote:

    I've been away from this board for several years. I began reading it in the 1980's and participated a bit into the late 90's. Having read these comments about gold and its future price, especially the reasons for its increase or decrease, I am amused at how much the elements of the discussion have remained the same. My interest in the market began in 1964. I'm not into an autobiography here, but there was an S & L bubble at about that time. As housing first recovered then boomed, one often heard "management is well aware of what happened last time, but we've learned a lot since then and it won't happen this time." It did, twice again. Silver, that commodity that isn't like gold because it gets used up in producing stuff -- better buy some before it gets to $100 an ounce! Oops. But tech stocks were entirely different -- and not at all like radio. Unlike gold or silver, the savvy investor could simply apply their favorite discount rate to earnings projections and , viola, there was the "inherent value" of the stock. Of course we revisited the home building boom. Anyone else recall Robert Toll assuring us that management had learned from past history and that things were different this time? Here we are again with gold. It has "inherent" value. No, it doesn't. It's a currency, like money. No, no, no and no! If one purchased it at $250 and held it to $800, one made money. If one bought at $800 and sold ten years later, they'd lose their shirt. Now it's way above its inherent value and must be headed for a fall. It's way overpriced at $1,100, which will become clear when it reaches $2,000. Since it does not create anything, it doesn't have earnings, so there is nothing to which one can apply a discount rate. So it just must be worthless, except for the uninformed who will buy an ounce of it from you for $1,150 or so, which makes it worth how much? These comments are just as entertaining as they were 20 years ago. Thanks.

  • Report this Comment On January 11, 2010, at 4:37 PM, Fool wrote:

    did Bill Mann quit the Fool?

  • Report this Comment On January 11, 2010, at 5:53 PM, rmadler wrote:

    I am amazed by the diversity of opinions here.

    That was then - this is now.

    Has the U.S. ever PRINTED trillions of dollars in such a short period of time? No - because the U.S. has never been as BROKE as it is right now... with most of the states in a lot more dire straits than they were 20 years ago. How large was our national debt 20 years ago? Sorry, the dynamics going on today - FACTS - have never before occurred in this country.

    So I invite everyone reading this to answer the question we see on TV all the time... If you had to hold your position for five years, would you rather have $50,000 in cash - or $50,000 in gold? Then let's all mark our calendars for 1/11/15...

  • Report this Comment On January 11, 2010, at 5:59 PM, mpendragon wrote:

    There isn't any long term money to be made in excessive fear or exuberance. The money will follow economic growth out of the global recession out of gold and a lot of it will move into developing nations with the ability to do something with it. That will continue until too much money flows in and we get our next bubble.

  • Report this Comment On March 24, 2011, at 11:57 PM, jesvlim wrote:

    The question should be:

    "If you had to hold your position for five years, would you rather have $50,000 in cash, or $50,000 in gold, or $50,000 in a global equity ETF? Then let's all mark our calendars for 1/11/15..."

    More than a year has since passed and gold is doing quite well. Personally I would split it 70% equity, 15% cash and 15% gold. Though relatively a small portion in gold, it nevertheless represent a substantial increase in gold investment as I do not yet have gold in my portfolio.

  • Report this Comment On March 25, 2011, at 2:46 AM, jesvlim wrote:

    There are too many factors that can influence the price direction of gold. It takes a confluence of these factors to drive it up or down. You would have to consider USD strength/weakness, inflationary pressures, economic growth, interest rate movements, fear, natural disasters, oil shocks, US budget and current account deficits, property market, which countries want to buy/sell etc. It will be crazy to even attempt. The recent and still current Middle East uprisings and natural and nuclear disasters in Japan affected gold in that it inched upwards only slightly and started to stagnate now. What is next for gold? Nobody knows. Unless you want to risk your sanity analysing the factors above.

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