It's being called the Ultimate Battle of the Bears.
Two men known for their market bearishness over the past few years squared off on the economy at the SkyBridge Capital SALT 2014 conference.
In one corner was Peter Schiff, president of Euro Pacific Capital, arguing that the Federal Reserve Bank was pushing the United States into hyperinflation and that the economy would be better off with deflation. In the other corner was Nouriel Roubini, the New York University economist who predicted the financial crisis in the last decade. Roubini believes the economy is on the road to recovery and that a little inflation isn't such a bad thing.
"We do have an inflation problem and a bubble," Schiff said on CNBC. "Commodity prices are rising. Maybe you haven't noticed but gold is at $1,300."
Roubini dismissed Schiff's argument that "inflation is actually worsening the problems in the economy" by noting deflationary periods during the Great Depression and in Japan over the past two decades didn't help in either of those situations.
Schiff "has been predicting a collapse of the dollar, gold going through the roof and inflation rising sharply," Roubini said. "I just see the opposite. I see the U.S. economy—which, in spite of QE1, QE2, QE3 — there's going to be an economic recovery."
So, who has it right?
"It's actually an easy call," said portfolio manager Chad Morganlander of Stife Nicolaus' Washington Crossing Advisors. "I think Roubini has it spot on. You have a tepid, nascent recovery here in the United States. You have inflation that is growing roughly around 1 ½ percent. Just keep in mind that post-World War II, the inflation rate [averages] around 4 percent or so."
With household credit creation growing "modestly", according to Morganlander, "it does not whiff or smell of any inflation in regard to the hyperinflation."
With the U.S. budget deficit now back down to 2 percent of GDP in the last quarter, "you're not seeing this kind of worrisome issue that you would want to overweight gold in one's portfolio at this point," Morganlander said.
"We would be neutral to underweight gold," added Morganlander. "We don’t think that the U.S. dollar is going to plummet as [Schiff] believes. We believe that over the course of the next 18 months, you can see a moderate strengthening, in particular against the euro."
Ari Wald, head of technical analysis at Oppenheimer & Co., said gold's technicals also agree with Roubini. Wald overlaid a chart of gold with a chart of the percent of those surveyed by Consensus Inc. who said they were bullish on gold.
"People responding saying that they're positive in the price of gold jumped from 30 percent at the start of the year up to 70 percent in March," Wald said. "We kind of view that as a little bit premature. We thought the sentiment figures were getting ahead of themselves here. "
Instead, Wald sees gold falling to $1,200 per ounce, near the double bottom lows it made over the last several months.
"I wouldn't even be stepping in just then," Wald said. "I want to see stabilization at $1,200 because I see a scenario where gold can make new lows."
To see the full discussion on gold, with Morganlander on the fundamentals and Wald on the technicals, watch the above video.