Roubini Turns Bearish On Gold (Again), Suggests Taking Profits And Buying Puts... Much Like He Did In December 2009

Tyler Durden's picture

Rouibini has never been much of a fan of gold. Which is why we were not too surprised when we read RGE's latest recommendation on the precious metal, which, as expected was to take profits. Doctor Realist says: "September may be a good month to take partial or full profits for an
investor with a long gold position. Alternatively an interested investor
could buy December put options." Of course, had RGE clients followed the good Doctor's advice back from December 2009, there would have been no profits to be had. To wit: "Investors should thus be wary of getting the gold bug and being stuck with this barbarous relic. The recent swings in gold price—up 10 percent one month, down 10 percent the next—prove  the point that gold has little intrinsic value and that most of its price movements are based on beliefs and bubbles. As an insurance policy against the tail risk of eventual inflation, it may be useful to hold a small amount of gold in one’s portfolio, but stocking up portfolios with a fiat currency that has marginal practical use, a zero nominal interest rate, high storage costs, and the price of which is subject to volatile whims and bubbles is totally irrational. If you want to hedge against inflation, stock up on Spam or other canned food or buy futures on commodities that have more physical uses and consumer demand....Unlike other commodities, it has little intrinsic value. Much like a fiat currency, gold’s value is based largely on the irrational beliefs of investors. In a depression or near depression, one would be better off stockpiling canned food and other commodities like oil that are useful for riding out Armageddon. You cannot eat gold or burn gold." Ah yes, the good ole "can't eat gold" argument. Yet somehow, despite gold's indigestible qualities, it is precisely gold which today hit an all time high once again, despite RGE's December note and a chorus of other infidels screaming for gold's metaphoric blood. We expect to hear ever more pundits to attempt to top tick the market. Will they succeed? Sure, if the starting sample is a few thousand, one will always be spot on. Pure statistics.

From RGE: There's Something about September

Gold’s Seasonal Characteristics

As gold prices continue to rise, September’s reputation as gold’s favorite month remains intact. Is this coincidence? No—in fact seasonality has its place in the commodity sector beyond agriculture (planting vs. harvest) and energy (heating vs. cooling & driving).
The market reached a record high to US$1276.50/ounce on September 14, 2010. US Dollar/Yen, fell to a 15 year low before the Japanese Ministry of Finance intervened. That slide also contributed to the rally.

The price of gold is headed for its 10th straight annual gain, and is up 16% so far this year. We are only half way through the month and the metal has rallied over 2.3% so far.

Since 1975, September has been the best month for gold in terms of its month-over-month price appreciation. On average, gold in September has appreciated 2.60% above its August price during this period. Of the 34 years in this study, gold has risen month-over-month 23 times in September.

  • India—the largest global gold consumer—develops a voracious appetite for the metal beginning in September and extending to the beginning of the following year. September marks the beginning of the Indian wedding season and the start of preparation for Diwali, one of the country’s most important holidays, which typically falls in October or November.
  • Jewelry makers begin restocking inventories in advance of the Christmas shopping season, particularly in the U.S. and to a lesser extent by Europe (typically driven by Italy although this year may be an exception here).
  • China is the world’s 2nd largest consumer. The Chinese step up gold purchases in preparation for the week-long National Day celebration that begins October 1, and the Chinese New Year occurring soon in the new Roman calendar year.
    RGE View:

While the above demand drivers stem from the physical markets, the financial markets for the last few years have been the true price driver. The price of gold continues to appreciate predominantly due to its safe haven characteristics. Recent investor doubts regarding fiat currency made gold an attractive asset, in addition to its characteristic of being a “no default” risk investment. Gold has no counterparty risk, making it one of the few assets left in the world without an attached liability. Yet gold tends to perform well in fat tail events, such as depression/severe deflation or actual/anticipated inflation. While we believe there is still upside potential to gold, we feel it is limited. While the global economy currently fluctuates between these two fat tails, we see upside limited to US$ 1300-1350/ounce (both fundamentally and technically) for the balance of the year, barring an extreme event moving us into fat tail territory. On the downside, US$ 1150/ounce is our target.

Recommendation:

September may be a good month to take partial or full profits for an investor with a long gold position. Alternatively an interested investor could buy December put options. December is the second best month for gold, having risen month-on-month on average 2.18% in the period under study. Gold volatility, while not cheap, has come off a few percentage points from July, and has good potential to rise again toward the end of the year.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Duck's picture

Listen to Roubini's opinions on the economy.

Don't listen to him on the market.

Stick to what you know.

cbaba's picture

+1

Before the crash of September 2008, he was extremely good predicting the crash, he defined 12 steps to financial meltdown.

But later on something happened, he softened his voice, like someone from the government/FBI told him, if he doesn't support the economic outlook of this government and give bullish comments on economy and support the dollar we will kill you ?

I guess he is scared somehow and his tone is changed ...

I never read him anymore... i know that he will say something stupid like Gold will crash... i am not surprised..

For me he is possessed by the Goblin in Chief and his squid team .

 

silvertrain's picture

Exactly!! He is playing the part of a schill spouting this off..

Testicular Cancer's picture

Anybody see Johnny Bravo other than on the side of a milk carton?

Getagrip's picture

He's been bought. Spot on...

SheepDog-One's picture

Roubini was 'corrected' by the appropriate people a couple years ago.

Oracle of Kypseli's picture

Here is my take:

Gold will temporarily go down so that the "ruling class" can reload:

Tomorrow is the smack down.

Getagrip's picture

Buy farm land as you don't want to be in the city when ugly turns to rage...

Oracle of Kypseli's picture

Already done in 08. Peruvian Andes next to fresh water spring.  

DoChenRollingBearing's picture

+ 1,000,000 Oracle!

As long as you get along well with your neighbors...

We have a business in Lima, no farmland though.  Gets bad here it would be bad in Peru too.  But, if we chose to go, we have lots of (her) family and we could live like Kings down there.

Hephasteus's picture

That's not very reasonable. Since there wasn't enough gold released on market from Japan. I'd look for gold to get close to 1280 tomorrow morning. Then without enough gold to work the transfers. I'd watch  platinum and silver. When silver busts 21 and platinum busts 1720 the pressure on gold will become too intense and it should start jumping up big time. It just has to take out the support of it's cousins. Which platiunum can't take much pressure off because it's not 100 to 1 leveraged. If it spikes up to 2150 in october it's game over. It went from 1500 to 2250 in a matter of DAYS on last liquidity crunch.

http://www.youtube.com/watch?v=_4bX5LyC6vw

 

midtowng's picture

Roubini's advice doesn't match his own chart. Looking at his chart you should buy gold in August and sell in December, not September. Why is he giving advice that his own charts disagree with?

-1Delta's picture

Speaking of opinions, J Bravo, said he would not come back if Gold broke out....

 

I hate to say it, but i miss the guy....

 

Oh well...

RockyRacoon's picture

Count your blessings and move on.  He's not missed by many.

centerline's picture

Just got an email from an unknown company selling gold, silver, etc.  Bad omen here from a contrarian standpoint - in terms of short-term movements at least.

truont's picture

It will get worse. 

Soon, everyone you know will be into gold stocks.

It will be like the internet stocks in the 1990s.

People will climb over each other pushing valuations higher and higher...

That is when you sell your PMs.  This bubble is just starting to inflate.

goldmiddelfinger's picture

That was 1978's bubble fool. Been there done that. Ya might see if Bunky Hunt has some internet stocks fer sale.

silvertrain's picture

 Gold is no yahoo im afraid, and when folks think it may be done, it will kick into yet another gear..Getting out of pm's at or near the top will be a feat like no other to try and time...

Treeplanter's picture

I don't think soon.  I think part of the professional investor class will load up.  Ma and Pa Investor know that something is way wrong, that big trouble is coming, but they will take more time to figure out what they want to do about it.  This is ground floor time, when people are put off by negative comments like Roubini's while those who get it get in fairly early.  This is a much longer ride than the dot.com bubble.  That was yuppie fever.  We are in a different ball game now.

Rainman's picture

...funny, that term : " we are in a different ball game now ". Heard it over and over from two formerly wealthy friends a decade ago who were deep into the dotcom scam.

Gold phys has been a part of my portfolio for over two decades. It is in my top 5 best investment categories for that period. Do I wish I owned more ?? YES. Is it in a bubble now ?? YES. Have I sold some recently ?? YES ( book profit and buy back cheaper later ). This is all that Rouibini is saying.

If it walks and quacks like a deflation-contrary bubble, then it's a ......... or it's a fear hedge that needs to work despite a firestorm of international manipulation to bring it down . The first rule in investing is " don't be greedy ". The second is " don't underestimate the enemy ". And you need to be real damn sure you're right when you come in big at what looks like a top .   

SheepDog-One's picture

Here Ive seen people going door to door buying gold and silver, from destitute retirees inside these homes I assume.

Temporalist's picture

Trying to get every last scrap from the ignorant.

Double down's picture

One cannot trust contrarian indicators anymore. 

How many of these indicators told us not to buy in March 2009?  These indicators assume a normalcy to the market that from my view point no longer exists.  TI believe these indicators represent structural changes and not buy or sell signals.  That is a very different message. 

  

Temporalist's picture

The only way to be contrarian is to not listen to anyone but yourself.

theworldisnotenough's picture

It is a potential headache for buyers of gold. In the name of protecting the stupid we will get a more tightly regulated gold market.

 

goldmiddelfinger's picture

Weiner and Waxman? Tell me it's a gay band.

RockyRacoon's picture

Weiner and Waxman  -- great band.  Barney blows the sax.

DoChenRollingBearing's picture

^----  LOL, guys!  I needed the laughs, thanks!

truont's picture

Instead of regulating the private gold companies, why doesn't Congress regulate the private Federal Reserve, and tell them to STOP monetizing the debt!  No one would even buy gold if the FED wasn't printing money like mad, and forcing bond yeilds to negative real interest rates.

Oh, yeah, that's right.  CONgress wants Bennie to monetize the debt....

Frank Owen's picture

"CONgress wants Bennie to monetize the debt...."
and there lies the irony of the audit the fed/ return to article 1 section 8 of the constitution argument.

RockyRacoon's picture

They are treating the symptoms, not the disease.  Nothing unusual there for either Congress or the Fed.

ZackLo's picture

Weiner and Waxman trying to fuck the gold bugs, maybe they will bring up something important during the hearing like maybe HR 4248 but I doubt it...

GoldSilverDoc's picture

Long term:  buy gold. Take delivery.  Don't sell.  Live on something else.

Short term:  play the lottery.

Sudden Debt's picture

The price of gold would be a lot lower if it was concentrated in big vaults.

But now a lot of gold is distributed in comon people's vaults and are nearly untraceable.

They don't sell it that easy, makeing demand higher then the supply. And as we continue in time the remaining gold gets more scattered causing...

a much higher price.

 

Dr. No's picture

Agreed.  Gold in big vaults allow the owners to sell paper certificates agains the vault contents and/or lease it out.  This results in fractional reserve gold banking....

Mr Lennon Hendrix's picture

It "is" concentraded in big vaults, "Knox", known and otherwise....

Dr. No's picture

There you go again!  lol!  You make me laugh with your sarcastic statements about gold being in Fort Knox and/or the Fed reserve of new york...

Mr Lennon Hendrix's picture

Yeah but I said "is" and "Knox".  Clear enough???

Stuart's picture

When it comes to bullion, Roubini knows shit, but he does has alot of company.

 

Pladizow's picture

Shhhhh, don't argue with the good doctor or anyone else with this view.

Allow them to continue to spread this message far and wide, to any and everyone that will listen.

In the mean time: I'll continue to accumulate.

He's not even that bearish, his downside is 10% and at the same time he thinks we have a 40% chance of a double dip.

He is being quite contradictory. If we have this MSM double dip, will the price of gold fall? - I think not.

If there is this fictitious double dip, by what percent does he feel equities will fall?

Monetize Me Captain's picture

Agreed. Let all the mistaken money managers sell their gold, I'll be the one buying. Just give me one good dip to buy on, please.

Monetize Me Captain's picture

Agreed. Let all the mistaken money managers sell their gold, I'll be the one buying. Just give me one good dip to buy on, please.

theworldisnotenough's picture

Where is the intervention? I was hoping for a $20 drop to cover my shipping costs.