Monday, October 21, 2013

Peter Schiff: Is It Time to Buy Gold?

A Green Light for Gold?
By Peter Schiff

It is rare that investors are given a road map. It is rarer still that the vast majority of those who get it are unable to understand the clear signs and directions it contains. When this happens the few who can actually read the map find themselves in an enviable position. Such is currently the case with gold and gold-related investments. 

The common wisdom on Wall Street is that gold has seen the moment of its greatness flicker. This confidence has been fueled by three beliefs:  A) the Fed will soon begin trimming its monthly purchases of Treasury and Mortgage Backed Securities (commonly called the "taper"), B) the growing strength of the U.S. economy is creating investment opportunities that will cause people to dump defensive assets like gold, and C) the renewed confidence in the U.S. economy will shore up the dollar and severely diminish gold's allure as a safe haven. All three of these assumptions are false.

Recent developments suggest the opposite, that: A) the Fed has no exit strategy and is more likely to expand its QE program than diminish it, B) the U. S. economy is stuck in below-trend growth and possibly headed for another recession C) America's refusal to deal with its fiscal problems will undermine international faith in the dollar.

Parallel confusion can be found in Wall Street's reaction to the debt ceiling drama. Many had concluded that the danger was that Congress would fail to raise the ceiling. But the real peril was that it would be raised without any mitigating effort to get in front of our debt problems. Of course, that is just what happened.
These errors can be seen most clearly in the gold market. Last week, Goldman Sachs, the 800-pound gorilla of Wall Street, issued a research report that many read as gold's obituary.The report declared that any kind of agreement in Washington that would forestall an immediate debt default, and defuse the crisis, would be a "slam dunk sell" for gold. Given that most people never believed Congress would really force the issue, the Goldman final note to its report initiated a panic selling in gold. Of course, just as I stated on numerous radio and television appearances in the day or so following the Goldman report, the "smartest guys in the room" turned out to be wrong. As soon as Congress agreed to kick the can, gold futures climbed $40 in one day.

Experts also warned that the dollar would decline if the debt ceiling was not raised. But when it was raised (actually it was suspended completely until February 2014) the dollar immediately sold off to a 8 ½ month low against the euro. Ironically many feared that failing to raise the debt ceiling would threaten the dollar's role as the world's reserve currency. In reality, it's the continued lifting of that ceiling that is undermining its credibility.

The markets were similarly wrong-footed last month when the "The Taper That Wasn't" caught everyone by surprise. The shock stemmed from Wall Street's belief in the Fed's false bravado and the conclusions of mainstream economists that the economy was improving. I countered by saying that the signs of improvement (most notably rising stock and real estate prices) were simply the direct results of the QE itself and that a removal of the QE would stop the "recovery" dead in its tracks. Despite the Fed surprise, most people still believe that it is itching to pull the taper trigger and that it will do so at its earliest opportunity (although many now concede that it may have to wait until this political mess is resolved). In contrast, I believe we are now stuck in a trap of infinite QE .

The reality is that Washington has now committed itself to a policy of permanent debt increase and QE infinity that can only possibly end in one way: a currency crisis. While the dollar's status as reserve currency, and America's position as both the world's largest economy and its largest debtor, will create a difficult and unpredictable path towards that destination, the ultimate arrival can't be doubted. The fact that few investors are drawing these conclusions has allowed gold, and precious metal mining stocks, to remain close to multi year lows, even while these recent developments should be signaling otherwise. This creates an opportunity.

Gold moved from $300 to $1,800 not because investors believed the government would hold the line on debt, but because they believed that the U.S. fiscal position would get progressively worse. That is what happened this week. By deciding to once again kick the can down the road, Washington did not avoid a debt crisis. They simply delayed it. That is why I tried to inform investors that gold should rally if the debt limit were raised.Instead most investors put their faith in Goldman Sachs. 

Investors should be concluding that America will never deal with its fiscal problems on its own terms. In fact, since we have now redefined the problem as the debt ceiling, rather than the debt itself, all efforts to solve the real problem may be cast aside. It now falls on our nation's creditors to provide the badly needed financial discipline that our own elected leaders lack the courage to face. That discipline will take the form of a dollar crisis, which will morph into a sovereign debt crisis. This would send U.S. consumer prices soaring, push the economy deeper into recession, and exert massive upward pressure on U.S. interest rates. At that point the Fed will have a very difficult decision to make: vastly expand QE to buy up all the bonds that the world is trying to unload (which could crash the dollar), or to allow bonds to fall and interest rates to soar (thereby crashing the economy instead).

The hard choices that our leaders have just avoided will have to be made someday under far more burdensome circumstances. It will have to choose which promises to keep and which to break. Much of the government will be shut down, this time for real. If the Fed does the wrong thing and expands QE to keep rates low, the ensuing dollar collapse will be even more damaging to our economy and our creditors. Sure, none of the promises will be technically broken, but they will be rendered meaningless, as the bills will be paid with nearly worthless money. 

In fact, the Chinese may finally be getting the message. Late last week, as the debt ceiling farce gathered steam in Washington, China's state-run news agency issued perhaps its most dire warning to date on the subject: "it is perhaps a good time for the befuddled world to start considering building a de-Americanized world." Sometimes maps can be very easy to read. If the dollar is doomed, gold should rise. 

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.


  1. Gold DID NOT from $300 to $1,800 because investors believed that the U.S. fiscal position would get progressively worse. The interest expense in 2013 was $220 billion dollars, same as it was in 2000. Once you take into consideration interest paid to the Fed and sent back to the Treasury, the interest expense in 2013 was 25% lower than in 2000.

    Gold went from $300 to 1800 because the real interest rate fell. Gold goes up when the real interest rate goes down. There is only one thing moving the price of gold, the real interest rate.

    If you think the real interest rate will go up, then get out of gold.

    Gold will be under 1200 by the end of the year and around 500 by the 2016 elections.

    1. "Gold goes up when the real interest rate goes down. There is only one thing moving the price of gold, the real interest rate."

      Prove it. Otherwise, you're a liar.

    2. That Jerry Wolfgang sure does go out of his way and work at it to make it seem like he knows what he's talking about.
      I still think he's a very disliked commenter named clover from
      If not, he's a dead-ringer of an imitation. And that's strange too.

      - RothbardianamericanHelot

    3. "Gold can do down in price?!" - last words of goldbugs as they're financially ruined as gold has no predictable intrinsic value. Around 90% of the gold has been mined since 1900 thus miners are doing their best to constantly devalue gold holdings.

    4. Funny last month it was" Interest rates go down " Bad gold, this month its " Interest rates go up " Bad gold, I wish you idiots would make up you're minds.

    5. Oh no. Another troll shows up. Gil, for many years, has been trolling over at the LvM website. I think he was finally banned. I guess he has to come here to troll his nonsense. Look out folks because he'll make JW look like an amateur.

    6. Ha. Clover would often post as Gil at EPA. Either someone who knows that is funning here, or it's the same method.
      Are they paid to troll these websites, or are they just imbeciles?
      They're too consistent to be imbeciles, imho.

      - RothbardianamericanHelot

    7. "Gold went from $300 to 1800 because the real interest rate fell. Gold goes up when the real interest rate goes down. There is only one thing moving the price of gold, the real interest rate."

      So, if we look at the real interest rate vs the percentage change in the gold price on a monthly basis, we get an r squared of .018. Translation: JW is full of s##t.

    8. Yes, and I'm sure those who lost out in real estate probably believed their guru Robert Kiyosaki that real estate is somehow a safe investment. Goldbugs like to talk about gold's upswings but never the downswings. Besides has never passed the 1980 all-time high. Thus presumably the world must have almost ended in 1980 yet somehow didn't.

  2. It's not a question of "if" but "when" the dollar is doomed. Thus, gold in dollar terms must rise. Today's prices will look like a grand bargain compared with where they're going.

    1. Yes, the 'when'. Perhaps the 'when' explains the slight difference of opinion between Ron Paul & Peter Schiff vs.Jim Rogers? Ron Paul & Peter Schiff say now is an ok time to buy. Jim Rogers recently said gold might go to $950 for awhile, but ultimately to $2,000. The thing I don't understand about Jim Roger's position is, he says he's not buying now in the $1200 - $1350 range, but he was a buyer not too long ago in the $1500 range. Why do you suppose that is? He just changed his mind?

      - RothbardianamericanHelot

    2. Good question Anon...he had to have changed his mind.

      Though if you listen to Rogers he always says, "I'm a really poor market timer."

      Meaning he makes money on long plays, not short. That again is contradictory to his current position on gold.


  3. I predict the gold price will reach $2,500 by 2015...driven by three factors the east Asian economies high demand for gold and diminishing supply of gold by gold mining countries such as South Africa...and of course the US continue to defy the laws of economics and money.

  4. Gold Premiums in India Climb to Record as Curbs Widen Shortage

    Gold premiums in India, the world’s largest user, climbed to a record as jewelers rushed to secure supplies to meet soaring demand during festivals and weddings amid government curbs on imports.

    The fees paid by jewelers to banks and other importers climbed to as much as $120 an ounce over the London price this week compared with a discount of $60 a month earlier, said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation. Premiums may surge to $150 to $200 if the shortage persists, he said.

    The raw material scarcity is worsening as imports slumped after the government linked shipments to re-exports in July and increased tax on overseas purchases for a third time this year to curtail demand. Purchases of gold and silver tumbled to $800 million last month from $4.6 billion a year earlier, the Commerce Ministry said Oct. 9.

    “There is a shortage in the market and there will be panic in the market with each passing day” if supplies don’t increase, Bamalwa said. “The government is comfortable because import of gold is reduced but it’s a problem for consumers. Gold is in our culture and we can’t change that.”

  5. This Has The “Money Masters” Of The World Truly Terrified

    This leads us to Russell’s KWN piece from earlier this year: “At any time in history, there is a great and all-encompassing THEME. And I've wondered what the theme of today could be -- what is the great theme of our times? I grew up in different times during the '30s and 40s. The theme of my youth was -- stop the dictators, Hitler and Mussolini, from taking over the world.

    This is what I believe the theme of our times is. We are in a period where the “haves” are determined to hold on to their positions in the world. The “haves” include the world's leaders and politicians, and the world's “masters of the earth,” which includes those who control the world's money.

    Those who control the money make the rules, and their main aim is to remain in power. Currently, the various central banks control the creation and the issuance of money. To ensure that they remain in power, the central banks are spewing forth a veritable avalanche of fiat currency, money created out of a computer -- money that has been created out of “thin air.” In turn, we are supposed to bow down and thank the money creators, those who are saving us from a new world depression.

    So to sum up my search for a THEME, the theme of today is the “haves” remaining in power, and in doing so, also keeping the “have-nots” content and happy. Everything we are dealing with now, including stocks, bonds, real estate and possible sources of income revolves around the central theme that I have presented.

    One further comment. The key to control by the “haves” is the production of fiat, unbacked money. Gold is the enemy of money created out of a computer. When gold was removed as a discipline behind money, those who could create money out of thin air discovered the path to riches and control. And they developed a hatred towards gold that was understandable.

    Cut The “Money Masters” ENTITLEMENTS ,,,,,,,,,,,,,,,,,,,,and then see where gold goes.