Dollar, franc may beat gold in a recession, says Nouriel Roubini

LONDON: New York University Professor Nouriel Roubini said the dollar, the yen and the Swiss franc may be a better investment than gold if the world economy slips back into recession. “If there was a double-dip recession, increasing risk aversion, some assets are going to be preferred, and gold will be one of them,” Roubini said. “But in that situation, things like the dollar, the yen, the Swiss franc have more upside in a situation of rising risk aversion because they are much more liquid than the gold market.”

Investors are dashing to hold securities deemed to be among the most secure in a slowdown as evidence mounts that the US rebound from the worst recession since World War II is running out of steam. The Swiss franc rose to a record against the euro on August 31 and the yen last month reached its strongest level against the dollar since 1995. The price of gold has risen 14% this year and traded at $1,241.10 an ounce in London.

“I believe that gold is going to trade around current levels,” Roubini said in Cernobbio, Italy. “There are two extreme events that lead to a spike in gold. One is inflation, but we have no inflation in advanced economies. If anything, there is a risk of deflation.”



“The other event in which gold prices go up is the risk of a global financial meltdown, and that tail risk has been reduced because we backstopped the financial system,” he said. Roubini, who forecast the US recession more than a year before it began, today predicted that the US economy is set to slow in the second half of the year as “tailwinds” such as fiscal stimulus and inventory adjustment become “headwinds.”