The author fails to recognize or examine the point that it may be possible that the current gold price action is actually a hedge by foreign banks against the current rising currency bubble. A contra-position against an existing bubble, is not, itself a bubble.

Like most of the mainstream financial press, Roubini appears to me to be reading off a script. He entirely misses the other side of the gold coin. The other issues which are probably more important long term in my opinion are the following:

The first and most important issue is that the monetary precious metals are the only two commodities which, in my opinion, have routinely been price suppressed by central banks and on behalf of the top fiat currency systems. Unlike every other commodity silver and gold have never been allowed to come close to reaching their inflation adjusted highs which they reached shortly after Nixon defaulted (strike that) canceled the last vestige of the US gold standard. While gold is currently in the neighborhood of about half its inflation adjusted high, silver remains at below 1/6th of its inflation adjusted high.

Central banks have been a major contributor to the “Supply” side of the ledger over many years while Gold mining supply has leveled or is declining. In the meantime as central bank hordes have been depleted, central banks on net are no longer contributing to the supply side and have moved to the demand side. So not only are central banks, in aggregate, not supplying gold, they are demanding it, even as miners are facing increasing costs and logistical challenges in recovering gold.

The second point and one the mainstream financial press has studiously avoided for many years is the excellent analytical work of the Gold Anti Trust Action Committee (GATA). GATA has done work that I believe proves that the central banks, including the Federal Reserve have engaged in Gold SWAPS and that many if not most of the largest world central banks played that game along with the US for years as the primary mechanism to keep gold prices suppressed in order to help keep interest rates lower even as very large amounts fiat money and debt and fiduciary media were created. This is based on the work of Summers involving Gibson’s paradox as relates to gold and interest rates.

According to my understanding GATA's research, these central banks have accounting rules that allow them to keep swaps off the books and to continue to report the swapped and leased gold as if were still available physical gold. If GATA’s analysis is correct, the central banks may have only about half or less of the gold they report. In my opinion, there work is rock solid.

I am looking forward to the day this publication and other mainstream news sources begins interviewing GATA founders like Bill Murphy to finally look at this issue. At a time when the US may pass an “Audit the Fed” bill, I think its about time to hear more on this subject.

As far as today's market action in currencies and Gold and Silver:

Today's Dollar movement is clearly interventional (likely some combination of the US Japan and China and Europe) because the dollar is up and gold and silver are fully under record massive short positions by a small handful of the largest US and UK member banks of their respective central banks and on a day when we are seeing a Surge in Wholesale Inflation. That is a dead giveaway to me.

Additionally, there are many signals in the field showing that sovereign debt is increasingly risky and that debt levels among the largest currency manufacturers is rising as the debts among those in the basket of currencies are all not repayable at current currency valuations (relative to real products and real money gold and silver).

Short term, these central banks can cause these fluctuations but looking outside these fluctuations, the whole basket seems to be less and less safe and as more and more of the wealth begins to realize how the wool is being pulled over their eyes it seems to me very likely that wealth will want to get parked in the safest haven of all and take possession of physical gold and silver while it can still be had.

I have much more to say. If you want to learn more search for silver and gold and

Duffminster

http://www.duffminster.com/SilverandGold

You said..."But, since gold has no intrinsic value, there are significant risks of a downward correction. Eventually, central banks will need to exit quantitative easing and zero-interest rates, putting downward pressure on risky assets, including commodities. Or the global recovery may turn out to be fragile and anemic, leading to a rise in bearish sentiment on commodities – and in bullishness about the US dollar. "

If that is the general thinking of those in the western world I fear that you've not only sealed your fate, but you've sealed your hope as well.

All I can say is... Please sell us all your gold & silver. We'll take them all!!! We in turn will hand you something thats on its way to its intrinsic value.

Warm rgds from Malaysia...

Sir,

let's say you're right and gold price is a bubble like other assets around the world because of the reasons you've explained in your article. Wouldn't a burst of these bubbles create the same sort of problems we've faced with the present economical great recession? Wouldn't a burst create pressures on banks balance sheets, governments budgets (because of another recession and likely banking support) and so add a lot of more pressures on monetary and fiscal authorities? Wouldn't that mean that there could be a good reason to hedge all this huge risk with something like gold?

You write gold has no intrinsic value. But we could say that everything has no intrinsic value or that everything has value according to what we need and why we need it. Considering the fact that the gold mined during the Roman Empire is still around us, and considering the huge risk we're facing because of a possible bubble burst or a possible huge inflation escalation, can we say that gold has a value because people want to reduce the risk they're facing? Is there anything better than something which comes out of the beginning of civilization in perfect shape? I don't think so.

You write that in a global economic meltdown it would be better to have guns, canned food and other commodities. That's right. But that doesn't mean you won't need gold at all. Let's assume the world economy is going to implode and all fiat money simply don't exist anymore. Let's assume we all go back to a barter kind of economy. Well that's exactly the time you'll need gold: it would have saved part of your wealth and it would help you to restore a monetary economy out of the shadows of barter. But why? Well because can we say that there is something better than a commodity in perfect shape since the time of Roman Empire, and even before of course, to restore trust in indirect exchanges and build up new capital for further development? No. There isn't.

Roubini is wrong on several accounts. First, gold is not a commodity, but a currency. Production and consumption of gold is irrelevant (unlike for commodities), what matters is investor demand. Second, gold doesn't rise when inflation is high (it rose by several hundreds of percents between 1999 and 2007 when inflation was low, and it fell during the 1980's when inflation was high, although subsiding). Gold rises because of currency debasement; when the Fed is behind the curve; when real interest rates are negative or low, which is the case now and will likely remain so for "an extended period".

Lastly, Roubini forgets that a bubble is characterized by extreme overvaluation and frantic rates of increase, which is not the case with gold today:

http://raphaelkahan.blogspot.com/2009/12/gold-is-this-bubble-yet.html

Dear Mr. Roubini,

In an environment of Rampant Money Printing a la Weimar Republic and Gideon Gono's Zimbabwe [and note that Zimbabwe has now jettisoned its currency], is not Gold a Better potential store of Currency than Fiat Currencies? Moreover, if you care to look at the Inflation adjusted Price, You will note that we are someway off the highs [last seen when the Shah of Shahs was being toppled by the Ayatollah]. Furthmore, that Gold holdings as a % of Reserves are at historic lows and hence buy side pressure is partly just a consequence of a reversion to a Mean.

Sure There is a degree of Leveraged Momentum related FAT TAIL Risk [particularly of the $ strengthens on a Countertrend basis] but in this World where everyone is a Helicopter [Ben Bernanke Theory] the idea of Holding Gold is a persuasive One.

However, More Compelling than Gold are the Soft and particularly the Breakfast Commodities which are signalling loud and clear that we have toasted this Planet a little too much and whilst we hold fancy Conferences we might well have tripped over the Tipping Point.

Aly-Khan Satchu

www.rich.co.ke

twitter alykhansatchu

Gold is a hedge against, not changes in currency values or inflation, but rather the collapse of unsustainable fiat currencies (for example the soon coming nightmare in the US regarding unfunded Medicare and Social Security liabilities, the nationalization of the still deteriorating mortgage system, and unlimited support to an insolvent banking system).

Fiat paper currency's role as a storage of value is in question. (after all it's history is not older than 30 years)

Last five year investment in gold has given more return than any such currency. Why you would you put your money in something in question?

The struggle of 'Big Money" is preservation of the 'value' and not return. Gold will continue doing that in next decade as well. No one knows if it requires to carry that burden in future.