The correction in commodity prices that had already taken place during 2011 could still accelerate, as it had been premised on a slowdown in the recovery rather than another full-blown recession. Certain key commodity markets were not yet fully pricing in the rising risk that a number of advanced industrial countries, including the U.S., could face a double-dip recession. Roubini said that he was assigning a 66% probability to the likelihood that some European economies and the U.S. would report economic contractions in the medium-term future.
The commodity rout will lead “rightly or wrongly” to a flight to safety in the U.S. dollar and U.S. government bonds, which are perceived as the “least dirty shirts in a very dirty laundry bag.”
Roubini noted that gold and precious metals could be exceptions since they are less subject to industrial demand.
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