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Roubini Doesn't Understand Gold – Currency Wars Author

By Kitco News
Friday June 7, 2013 3:50 PM

(Kitco News) - Famed economist Nouriel Roubini does not know much about gold said bestselling author James Rickards in an exclusive interview with Kitco News.

“Go back and Google Roubini’s comments on gold at the beginning of 2009 and see that he is consistently wrong. He’s a smart guy and has his place but he doesn’t really know anything about gold so I don’t see any reason to give it any particular weight,” Rickards said.

Earlier this week, Roubini, the New York University economist, released a six-prong analysis as to why he thinks gold will drop to $1,000 an ounce by 2015. The target would mark a decline of nearly 50 per cent from gold’s record high of $1,900 an ounce in 2011. As of 3:45 p.m. EDT, spot gold was last quoted at $1,379.30.

Citing the gold rush is over, Roubini, nicknamed Dr. Doom, cites six reasons he feels the metal’s glory days are over.

Rickards, author of “Currency Wars: The Making of the Next Global Crisis,” dismissed Roubini’s comments in a video interview with Kitco News’ Daniela Cambone.

In one of his points, Roubini argued that if another financial crisis were not to occur, gold becomes a poor investment vehicle. 

“If he thinks the crisis is over, if he thinks the depression is over, if he thinks that there are not serious financial and geopolitical risks in the global economy then he’s not living on planet earth,” said Rickards.

 “The real metrics are awful. The economy is in terrible shape and it’s just being papered over. Inflation is bad enough but worse than that is loss of confidence in paper money,” Rickards added.

If the Federal Reserve continues to print money, this widespread loss of confidence is inevitable and will be the “single catalyst that would drive gold to unprecedented levels,” Rickards said. 

In response to Roubini’s point that gold is not an income-yielding asset, Rickards stated that “gold is money and money doesn’t have a yield.” The problem, said Rickards, is that people view the metal as a commodity rather than as a currency. 

Alternative income-yielding investments are denominated by paper currency and Rickards argued that in the event of a currency collapse, the investments would become worthless while gold will remain strong.

In another of Roubini’s points, the economist said that extreme conservatives would drive gold prices lower. “These fanatics also believe that a return to the gold standard is inevitable as hyperinflation ensues from central banks' ‘debasement’ of paper money. But, given the absence of any conspiracy, falling inflation and the inability to use gold as a currency, such arguments cannot be sustained,” Roubini wrote.

According to Rickards, Roubini blames gold for the Great Depression and “although a very flawed gold standard was a contributing factor, the problem wasn’t gold, the problem was the price. They got the price wrong.” 

If a gold standard returned, Rickards said that the yellow metal would hover around $7,000 an ounce based on the current global money supply.

“If the US did go to a gold standard, the gold trade would be over, but we’re not. It is precisely because we’re not on a gold standard and we are printing money that gold has upside potential,” Rickards said.

By Sarah Benali of Kitco News sbenali@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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