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Nouriel Roubini says gold may be your best protection as the mother of all debt bombs & nine other megathreats are looming

Kitco News

Ten “megathreats” are hurtling towards the world including war, debt crises, and a demographic “time bomb” will make investors flock to gold, hence causing the yellow metal’s price to rise to $3k by 2028, according to Nouriel Roubini, CEO of Roubini Macro Associates and Professor Emeritus at NYU Stern School of Business.

“Over the next few years, I would expect that gold could have high single-digits into low double-digits rates of return,” he said. “I expect… rates of return around 10 percent per year over the next five years.”

Inflation, stagflation and a trend towards ‘de-dollarization’ will be the main drivers.

“If the rivals of the U.S. have to diversify away from dollar assets because we weaponize the dollar and sanctions can be imposed, then the only international reserve asset that cannot be seized by the U.S. and the West is not the dollar, Euro, yen, or pound,” he said. “It can only be gold.”

He forecast gold to rise by 10 percent per year over five years, resulting in a gold price of over $3,000 per ounce, an overall return of 60 percent.

Roubini, also known as ‘Dr. Doom’ for his grim economic forecasts and for correctly predicting the 2008 financial crisis before it occurred, said that a “stagflationary depression” could begin in 2023, which would cause both stocks and bonds to decline.

“If I am right, that we will have a hard landing, that inflation is going to be persistent, and that central banks are in a dilemma, [then] both equities and bonds will do poorly,” he predicted. “Gold should do better because… it is a hedge against inflation. It is also a hedge against financial instability, and a hedge against social, political, and geopolitical stability.”

Roubini spoke with Michelle Makori, Editor-in-Chief and Lead Anchor at Kitco News.

Geopolitical threats

Roubini said that “revisionist powers” like China, Russia, Iran, and North Korea would challenge the U.S. and Europe for world dominance in the years to come.

He singled out Taiwan, a U.S. ally, as an example. Echoing U.S. navy chief Michael Gilday, he warned that China could attack Taiwan as soon as 2023, causing further tensions between China and the U.S.

“[China’s President] Xi came to power for a third term not because he wants to reform China, but because he wants to pass into history as the president that united mainland China with Taiwan,” Roubini claimed. “Recently, Biden has made statements that if China were either to invade Taiwan, or even impose a naval blockade, the U.S. will directly intervene in that conflict.”

He warned that such a conflict would escalate into a “fully nuclear war between the U.S. and China,” and if the United States were to renege on its commitment to Taiwan, it would lose credibility as a military ally.

“If you lose Taiwan, your credibility of committing to defend your allies like South Korea, Japan, Australia and others in Asia is going to fall,” he observed. “That is why Taiwan is important, not because of Taiwan, but because of the consequences on the hegemonic power of the U.S. in Asia.”

Fed tightening likely to pause

The Federal Reserve raised interest rates by 425 basis points last year in an effort to tame inflation, which reached a peak of 9.1 percent in June 2022.

Roubini said that the Fed would need to raise rates to at least 6 percent, but is unlikely to do so, given that this would cause a “severe” recession and debt implosions. He suggested that the Fed would pivot or pause its tightening cycle.

“You need to raise interest rates at least to six percent in order to push, over time, inflation towards two [percent], but interest rates at six percent are going to led to severe economic contraction,” he observed. “It is going to lead to even more credit distress…. There is so much debt in the system that an attempt to reduce inflation not only causes an economic crash, it causes also a financial crisis. They will feed on each other, and faced with an economic and financial crash, the Fed and other central banks are going to have to wimp out, blink, and not raise interest rates as much.”

However, Roubini said that this monetary policy response would then cause a “de-anchoring of inflation expectations,” leading to inflation of “at least” 5 to 6 percent over the medium term.

“We have inability in the public sector to increase taxes or cut government spending,” he said. “The temptation is going to be to wipe out the real value of long-duration government debt at fixed interest rates, but you can also wipe out the nominal value of private debt through a bout of unexpected inflation. That has already happened last year, and it is going to continue to happen. We’re going to use the inflation tax to deal with excessive amounts of private and public debt.”

Megathreats

In his new book, Megathreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them, Roubini identifies debt crises, deglobalization, a demographic time bomb, climate catastrophes, Artificial Intelligence and other factors as “megathreats” which imperil all of humanity, and could lead to a “dystopia.”

A key theme in the book is that fixing one problem can make another one worse. For example, Roubini writes that to fix climate change, massive investments in green energy are required, but such investments would require a reduction in people’s standard of living.

“The economic cycles and the financial cycles, the boom bubbles busting and crashing, are becoming more severe and more frequent for a number of reasons, including toxic leverage of the economy and financial system,” he said. “It’s a very different world from the one I grew up in with these megathreats, which I didn’t even hear about while I was growing up. Now each one of them is a material threat to our prosperity, to peace, and to progress.”

To find out which other investments are likely to withstand Roubini’s ‘megathreats,’ watch the video above

Follow Michelle Makori on Twitter: @MichelleMakori

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