Gold bubble at 'significant risk' of correction, says Nouriel Roubini
Source: Bi-ME , Author: Bi-ME staff
Posted: Sat December 19, 2009 2:59 pm

INTERNATIONAL. Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics (RGE), who predicted the current financial crisis said the rally in gold prices is developing into a bubble and the precious metal faces "significant risks of a downward correction".

Writing in a research note reported by the Financial Times, Roubini said: "The recent rise in gold prices is only partially justified by fundamentals, and is in part a bubble that could easily go bust.

“The recent rise in gold prices is only partially justified by fundamentals, and is in part a bubble that could easily go bust,” warned Roubini in the report provocatively titled: “The new bubble in the barbaric relic that is gold.”

The note was circulated to investors last week but made available to the public Wednesday, the FT said.

Although “some diversification of gold in central bank and investor portfolios may make some sense”, Roubini writes in the report, there is “little reason” for bullion prices to rise rapidly towards US$2,000 an ounce unless the world enters a period of high inflation or slips into a depression.

Another potential cause of a gold spike would be if the fiat currencies were "rapidly debased via inflation;" this could happen if countries' ballooning budget deficits were not reined in, the note said, according to the FT.

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