Europe Economy

Gold at 'Significant Risk' of Correction: Roubini

The rally in gold prices is developing into a bubble and the precious metal faces "significant risks of a downward correction," Nouriel Roubini, chairman of RGE Monitor, said in a research note, the Financial Times reported Wednesday.

Nouriel Roubini

"The recent rise in gold prices is only partially justified by fundamentals, and is in part a bubble that could easily go bust," Roubini wrote in the report titled: "The new bubble in the barbaric relic that is gold."

The note was circulated to investors last week but made available to the public Wednesday, the FT said.

Roubini gained notoriety for correctly predicting the financial crisis, earning him the nickname of "Dr Doom."

If the global economy enters a period of high inflation or slips into a depression it could cause gold to surge toward $2,000 an ounce, Roubini conceded in the report. But there is "little reason" for such a strong rise unless that happens, he said, according to the FT.

Another potential cause of a gold spike would be if the fiat currencies were "rapidly debased via inflation;" this could happen if countries' ballooning budget deficits were not reined in, the note said. 

Investors remain divided on the outlook for gold, with many predicting strong gains to be the norm for some time to come.

Al Abaroa, commodity strategist at Options Pro, told CNBC that gold has one more "super spike" left and will push above $1,300 or $1,400 in the first-half of 2010. After that, gold will lose its luster, he added. 

"It's obvious we're starting to see upticks in inflation and future gold price will certainly be driven by inflation risk," he said.

Gold prices pushed above $1,130 Wednesday after being in decline since the beginning of the month.

Investors would be better off stockpiling canned foods and other commodities like oil if the recession suffered a double dip, Roubini said, according to the FT.