Gold heading towards $1,000; Limits of oil power; Prisoners of the euro; Zynga cuts workforce by 18%; Africa 'centre of world growth'

1 Gold heading towards $1,000 (Nouriel Roubini in The Guardian) The runup in gold prices in recent years – from $800 per ounce in early 2009 to above $1,900 in the autumn of 2011 – had all the features of a bubble. Now, like all asset-price surges that are divorced from the fundamentals of supply and demand, the gold bubble is deflating. In April, gold was selling for close to $1,300 per ounce and the price is still hovering below $1,400, an almost 30% drop from the 2011 high.

There are many reasons why the bubble has burst, and why gold prices are likely to move much lower, toward $1,000 by 2015.First, gold prices tend to spike when there are serious economic, financial and geopolitical risks in the global economy. During the global financial crisis, even the safety of bank deposits and government bonds was in doubt for some investors. If you worry about financial Armageddon, it is indeed metaphorically the time to stock your bunker with guns, ammunition, canned food and gold bars.

Second, gold performs best when there is a risk of high inflation, as its popularity as a store of value increases. But despite very aggressive monetary policy by many central banks, global inflation is actually low and falling further. Third, unlike other assets, gold does not provide any income. Fourth, gold prices rose sharply when real (inflation-adjusted) interest rates became increasingly negative after successive rounds of quantitative easing. But the more positive outlook about the US and the global economy implies that over time the Federal Reserve and other central banks will exit from quantitative easing and zero policy rates, which means that real rates will rise, rather than fall.

Fifth, some argued that highly indebted sovereigns would push investors into gold as government bonds became more risky. But the opposite is happening now. Many of these highly indebted governments have large stocks of gold, which they may decide to dump to reduce their debts. Sixth, some extreme political conservatives, especially in the US, hyped gold in ways that ended up being counterproductive. For this far-right fringe, gold is the only hedge against the risk posed by the government's conspiracy to expropriate private wealth. These fanatics also believe that a return to the gold standard is inevitable as hyperinflation ensues from central banks' "debasement" of paper money. But, given the absence of any conspiracy, falling inflation and the inability to use gold as a currency, such arguments cannot be sustained.

So gold remains John Maynard Keynes's "barbarous relic," with no intrinsic value and used mainly as a hedge against irrational fear and panic. Yes, all investors should have a very modest share of gold in their portfolios as a hedge against extreme tail risks. But other real assets can provide a similar hedge, and those tail risks are certainly lower today than at the peak of the global financial crisis. While gold prices may temporarily move higher in the next few years, they will be very volatile and will trend lower over time as the global economy mends itself. The gold rush is over.

2 Limits of oil power (Fahad Nazer in Khaleej Times) Thanks to the bountiful oil under its desert sands and an equally plentiful supply of foreign labour – skilled and non-skilled – Saudi Arabia has enjoyed a booming economy. But as more young adults come of age and expect jobs, as the potential for competing sources of energy emerge around the globe, leaders must plan for a more austere future, raising questions about the Saudi development model. Early casualties of this Saudi rethink include millions of expatriates who have flocked to a booming oil kingdom.

Long before the Saudi population exploded – from 6.8 million in 1973 to more than 28 million currently – fields in the Eastern province began gushing oil that proved to be among the cheapest to extract in the world. As oil production and prices kicked into high gear by the early 1970s, Saudi Arabia underwent one of the most rapid transformations in modern history. From a sparsely populated, largely barren dessert, Saudi Arabia today boasts state-of-the-art highways, airports and communication networks. This “miracle in the desert”, however, needed a massive influx of foreigners from across the Arab world, Africa and Asia to turn rapid development into reality.

Recently, government unemployment-benefits programmes confirmed what many have known for a while: An estimated 600,000 Saudis are unemployed, almost 80% of whom are under age 30. Many argue that the private sector, long dominated by non-Saudis, is the logical place to absorb citizen workers. To avert shocks to the system, Saudi officials implemented a programme called “Nitaqat,” which ranks businesses according to the percentage of Saudi nationals employed. Nitaqat rewards companies for hiring more Saudis and penalises those that do not. While considered a common-sense approach by many, business owners have protested what they call arbitrary standards that reduce bottom-line profits.

A large number of Saudis advised their countrymen not to transfer this hostility to the millions of legal workers who have played a pivotal role in the kingdom’s development and urged Saudis to treat immigrants as guests. Among writers asking Saudis to look at themselves was Khalaf Al Harbi in the Saudi Gazette: “The fault is within us and not within the foreign workers.” In the meantime, an estimated 800,000 Yemenis, Indians, Pakistanis and Filipinos among others deported over the past 18 months have added a truly global dimension to what Saudi authorities see as necessary measures to reduce a 12% unemployment rate.

The uncertainty that followed the crackdown prompted King Abdullah to issue a three-month grace period for illegal workers to rectify status. Still, difficult decisions await Saudis about the millions of non-Saudis in the country legally as the government looks to resolve high unemployment and secure work for its own youth.

3 Prisoners of the euro (Ross Douthat in The New York Times) To its custodians and admirers, the European Union is the only force standing between its member states and the age-old perils of chauvinism, nationalism and war. That was the pointed message that the Nobel Committee sent last year, when it awarded the union a Peace Prize for its role in “the advancement of peace and reconciliation, democracy and human rights.” 

But right now, the EU project isn’t advancing democracy, liberalism and human rights. Instead, it is subjecting its weaker member states to an extraordinary test of their resilience, and conducting an increasingly perverse experiment in seeing how much stress liberal norms can bear.  That stress takes the form of mass unemployment unseen in the history of modern Europe, and mass youth unemployment that is worse still. In the Continent’s sick-man economies, the jobless rate for those under 25 now staggers the imagination: over 40% in Italy, over 50% in Spain, and over 60% in Greece.

For these countries, the euro zone is now essentially an economic prison, with Germany as the jailer and the common currency as the bars. No matter what happens, they face a future of stagnation — as aging societies with expensive welfare states whose young people will sit idle for years, unable to find work, build capital or start families.

The question is whether they will face ideological upheaval as well. So far, the striking thing about the aftermath of the 2008 financial crisis, both in Europe and the US, is how successfully the center has held. Power has passed back and forth between left and right, but truly radical movements have found little traction, and political violence has been mercifully rare.

4 Zynga cuts 18% of workforce (Benny Evangelista in San Francisco Chronicle) The struggles at Zynga have worsened as the social game maker announced plans to cut 520 employees, about 18% of its workforce, and projected a larger than expected net loss of $28.5 million to $39 million for the second-quarter.

The San Francisco company, once one of the city’s fastest growing tech firms, said that while its franchise “FarmVille” games continued to do well, “other games are underperforming.” The new round of layoffs come on top of a reduction of 150 employees in December. Zynga, which is also closing several offices, is expecting to incur restructuring costs of $24 million to $26 million for the second quarter and $2 million to $5 million in the third quarter. In this internal e-mail to Zynga employees, Chief Executive Officer Mark Pincus said “everyone will be affected” by the massive cutbacks.

5 Africa ‘centre of world growth’ (BBC) Africa will be an engine for world growth in the coming decades and Japan has to invest more on the continent, Japan's prime minister has said. Shinzo Abe was speaking at the end of a three-day conference on African development in Yokohama. Japan pledged $32bn in aid to Africa, including money to tackle militant Islamists.

Japan appears to be worried that its rival China has built a strong presence in Africa, correspondents say. "Africa will be a growth centre over the next couple of decades until the middle of this century... now is the time for us to invest in Africa," Mr Abe said at the end of the conference co-hosted with the African Union (AU), World Bank and UN.

"Japan will not simply bring natural resources from Africa to Japan. We want to realise industrialisation in Africa that will generate employment and growth." Critics repeatedly accuse China of simply making a grab for resources in Africa, but it denies the charge. It says it has invested heavily in building infrastructure on the continent.