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“Gold Rush is Over,” says Algorates, Roubini

Thursday, April 3, 2014 15:57
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NEW YORK, NY – The rush for gold that doubled the price of the valuable metal in less than three years is over.

This according to renowned New York University economist Nouriel Roubini, who announced that the “gold rush” during which the price of gold doubled between the beginning of 2009 and autumn of 2011 has ended. Accordingly, Roubini echoed the predictions by Algorates senior analyst Thomas Wentworth in an interview on August 2, 2013 published by the International Business Times, in which the analyst predicted gold’s continued decline in the coming years. (Source: International Business Times, )

In a recent article published for the “Project Syndicate”, Roubini reiterated the Algorates analysis regarding gold, adding that in the coming years, only investment houses such as Algorates, which offer funds based on High Frequency Trading (HFT) and algorithmic trading, can produce high yields trading the precious metal during a gold crisis. (Source: )

Algorates, first established in Britain in 2003 and employed by Wall Street banks and hedge funds to predict market movements using high powered computers and algorithms, began offering smaller managed portfolio accounts to the private sector in 2007. In July 2013, the Wall Street Journal named Algorates as, “one of the most profitable [fund management firms] in the market today…” (Source: The Wall Street Journal, Market Watch, July 25, 2013, )

The CBS News Channel recently reported that despite high market fluctuations during the world-wide financial crisis, “according to audited financial reports, since 2007, has earned more than 20% average annual returns for their clients (Source: CBS News Channel, October 19, 2013, ).

Using HFT and other algorithmic trading techniques, the’ “Sold Gold Fund”, one of the most profitable managed by Algorates based mostly on the trading of gold, has earned an impressive 500% in the past 3 years, despite gold’s steep declines in 2013. (Source: )

Roubini predicts that gold will reach the level of $1000 USD per ounce by 2015, and he gave a number of reasons for the bursting of the gold bubble.

Roubini explains that the price of gold tends to shoot up when there are serious economic, financial and geopolitical risks in the world economy. “During the financial crisis, some investors were even dubious of the security of bank deposits and government bonds,” wrote the economist. “If one fears a financial Armageddon,” he continued, “then that is the time to invest in gold.”

Further, Roubini contends that gold’s performance is best when there is fear of high inflation. In spite of a highly aggressive monetary policy adopted by many central banks across the globe, inflation is in fact low and even declining in most countries. He states that the reason for this is the ongoing leverage reduction of private and public debt which has caused the growth in demand to be lower than the growth in supply.

Another reason indicated by Roubini for the trend towards a drop in gold prices is the fact that the valuable metal, as opposed to other assets, does not yield any income, unlike stocks which pay dividends, coupon bonds or real estate. Moreover, at a time when the world-wide economic recovery has begun, other assets provide higher yields.

Roubini outlines how gold prices shot up when real interest rates dropped because of quantitative easing (QE). The US Federal Reserve and other central banks, however, have begun reducing quantitative easing and therefore interest rates will rise. The result will be further downward pressure on gold prices.

Finally, noting the expectation that a government debt crisis will cause many to invest in gold due to the fear of investing in government-backed bonds, Roubini says that, “the opposite is happening now. Many of the debt-laden governments hold large gold reserves, and it is possible that they will sell them to reduce their debts.”

“Although gold prices may rise temporarily in coming months, they will fluctuate more and their long term trend will be to decline as the world economy recovers.” As such, concludes the economist, it will be necessary for investors to look to other methods of trading to profit from gold in a fluctuating market.

Additional Sources:

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