Roubini’s curious case for gold at $1,000

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Nouriel Roubini's latest thoughts on gold are a bit of a head-scratcher: He has turned up the volume on his dislike of gold, yet provides a price target that doesn't sound too bad at all.

He sees gold falling toward $1,000 (U.S.) an ounce by 2015. Okay, that's a substantial decline from its current level of slightly more than $1,400 an ounce. And the target marks a decline of nearly 50 per cent from gold's record high of $1,900 an ounce in 2011.

But Mr. Roubini's target hardly sounds catastrophic – it is four-times gold's low in 2001. And it implies that the New York University economist nonetheless sees substantial value in gold, despite an argument that puts him deep into the bear camp.

Indeed, he has little respect for most gold investors. He argues that gold has no intrinsic value and is used "mainly as a hedge against mostly irrational fear and panic." Gold bugs, he says, are "a combination of paranoid investors and others with a fear-based political agenda."

That sounds like a good enough reason to stay clear of gold forever, or at least bet that gold's decline will be particularly violent – say, falling to new lows. Yet, Mr. Roubini doesn't go nearly that far, advising that all investors "should have a very modest share of gold in their portfolios as a hedge against extreme tail risks."

It is a curious contradiction. The thing is, though, Mr. Roubini's argument against gold isn't nearly as bearish as his rhetoric would have you believe: He just doesn't like gold right now. He outlines six reasons why gold is headed toward $1,000 an ounce – and most of them sound pretty temporary.

1. Gold can spike when there are big risks in the global economy, but not always.

2. Gold performs best when there is a risk of high inflation. But inflation today is low and likely heading lower.

3. Gold provides no income, making it less attractive when other assets are rising with an improving global economy.

4. Interest rates, after factoring in inflation, are set to rise, making gold less attractive.

5. Indebted governments are likely to sell their gold holdings.

6. The argument that the U.S. government will expropriate private wealth cannot be sustained.

"While gold prices may temporarily move higher in the next few years, they will be very volatile and will trend lower over time as the global economy mends itself," Mr. Roubini concluded. "The gold rush is over."

Well, for now.