REFILE: Significant Upside In Gold ‘Less Likely’ – Nouriel Roubini
Friday September 23, 2016 15:08
Editor's Note:This story was originally published on Sept. 15, 2016.
NEW YORK (Kitco News) - Although gold prices didn’t actually hit $1,000 as one famed economist predicted, he continues to remain bearish on the yellow metal.
This was Nouriel Roubini’s main message in his keynote address at CME Group’s annual dinner in New York.
“Significant upside to gold is less likely than last year,” he told a crowd in Gotham Hall Wednesday night.
Image courtesy of CME Group.
“My personal view will be as follows: most likely the Fed will skip September because there’s an election coming and because the economic data being mixed,” the New York University professor said. “But you can expect the Fed is going to hike this year at least once in December.”
Roubini highlighted the inverse correlation between gold prices and rate hike expectations, and given that he thinks markets are “underpricing” the probability of rate normalization, gold prices should suffer moving forward.
“The Fed will hike slightly faster than the market probably expects,” he said.
Based on CME’s Fed Watch Tool, markets are pricing in a 12% chance Fed chair Janet Yellen will hike rates this month, while pricing in a 46.2% chance for December. At the same time, gold prices have been under pressure following a mixed bag of U.S. economic data and heightened rate hike expectations. December gold futures settled Thursday at $1,318 an ounce, down 0.6% on the day.
Another factor that has Roubini bearish on the yellow metal is his optimism for the U.S. dollar. He explained that while the Fed is looking to tighten, other central banks are easing, likely boosting the greenback further and hurting gold.
As a safe-haven asset, gold tends to perform well in times of financial crisis and according to Roubini, the chance of financial turmoil is far lower than before, although he doesn’t deny the existence of “plenty of tail risk in global economy.”
“Therefore, buying gold as a hedge against extreme tail risk in financial markets is probably not a likely scenario,” he said. “Now that other assets are offering capital gains and income, gold looks less appealing.”
However, despite the risks in the global economy, particularly from Europe following Britain’s vote to leave the European Union, Roubini said he doesn’t see an EU breakup any time soon.
“The Eurozone is a slow motion train wreck but the eurozone is not going to collapse over the short term,” he said. “The eurozone could collapse years from now.”