I don’t exactly agree with Roubini, although I agree with him on deflation, just I don’t buy the idea that it’s inflation (in particular) that drives gold prices (http://www.marketoracle.co.uk/Article12165.html ); but I agree with his conclusion, and it’s good to know that there is at least one other person in the world who doesn’t buy the idea of gold breaking out and heading towards heaven (I was getting pretty lonely actually).

I think that gold is a bubble fuelled by excess liquidity and wonky valuations that you tend to get at the top of every bubble (remember the weird explanations of how to value a Dot.com stock at the top of that bubble)

The latest I heard is that it’s all about lack of confidence in government, well the peak of that “lack of confidence” was February/March 2009; and what happened to gold then? It dropped.

The best predictor of the gold price since 1971 was the price of oil (74% R-Squared on an annual basis), by that measure at $75 a barrel the price of gold should be $750, which means now it’s a bubble, which means if it comes down and oil doesn’t go up, then it could drop to $600.

Roubini: I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.

The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.