(Kitco News) – Valuations in risk assets continue to climb, which only strengthens the argument for rotating capital into defensive assets, such as gold, ahead of a potential market correction, said economist Nouriel Roubini, CEO of Roubini Macro Associate and professor at the NYU Stern School of Business.
Roubini cited several potential triggers for such a market correction.
“One thing that could happen is rising inflation is persistent. Second one is a taper tantrum if inflation is higher, and the Fed decides to really start tightening monetary policy. Another one that could happen is that growth could surprise on the downside, maybe not in the United States, but we’re already seeing a double dip recession in the Eurozone,” Roubini told Michelle Makori, editor-in-chief of Kitco News.
One such asset that is clearly in bubble territory is Bitcoin. Roubini said that the word “cryptocurrency” is a misnomer, as it is clearly not a currency, and also fails to hold up the definition of an asset.
“What’s an asset? Usually, it gives you some income or cash flow. Stocks give you dividends. Bonds give you a coupon. Loans give you interest,” he said. “Now, gold doesn’t have income but it has uses in industry. It has utility because it has uses in jewelry for thousands of years. It has been a stable store of value whenever there is inflation or deflation.”
Bitcoin, on the other hand, has none of these attributes.
“Bitcoin doesn’t have any income, doesn’t have any uses, at least as a means of payment, not a stable store of value, does not have utility, you can’t wear Bitcoin jewelry, and therefore, how do you even price it? What’s the fundamental value? For any other asset you have a set of fundamentals that can justify [the value]. The idea that Bitcoin is digital gold doesn’t make sense,” he said.
However, Roubini said that central bank digital currencies will become superior to cryptocurrencies and will one day replace them.
“A digital version of central bank currencies…will eventually become the means of payment of the future, and therefore, that’s going to be fully crowding out private monies like cryptocurrencies,” he said.
On gold, Roubini’s medium to long-term outlook is bullish and would maintain a “slightly overweight” position in the yellow metal.
For more details, including Roubini’s outlook, for gold prices and how central banks are diversifying away from U.S. Treasuries and into gold, click on the video above.
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