Peter Schiff recently appeared on the Commodity Culture podcast to talk about gold. He said that while gold has done relatively well this year despite significant headwinds, we haven’t seen anything yet. Once the markets realize inflation is here to stay, gold will be off to the races.
While the price of gold has been slowly climbing, especially over the last couple of months, Peter conceded he thought it would have run much higher. But he remains bullish on gold.
I still think I am going to be proven right on how much gold goes up. It’s just taking a lot longer to get there.”
And he remains optimistic that there will soon be a year when the yellow metal increases several fold.
Whether that’s going to be 2024, or 2025, or 2026, nobody knows, but I think it’s coming.”
Peter said there are a lot of misunderstandings about how gold should perform in the current economic environment.
Gold hit a record high in early December topping out at just over $2,125 an ounce. But it wasn’t off to the races as many hoped. Gold gave back a lot of those gains just days later. But even though gold briefly fell below $2,000 an ounce, it quickly regained that level.
I think this is now the new support for gold — just around $2,000 per ounce. That used to be the record high. So, the fact that we are now building support near what used to be massive resistance is a very bullish technical factor.”
Peter also pointed out that gold has held up relatively well through 2023 despite significant headwinds.
These are headwinds that really shouldn’t be there, but it’s about perception. And the perception was that rate hikes were going to be very bearish for gold, that rising real interest rates to the extent that they were real, but the markets believed that, should have been bearish for gold.”
Now the Fed has effectively ended the tightening cycle, but gold remains at $2,000.
If gold did this well in an environment of raising rates, imagine how much better it is going to do if rates are falling. And the real environment that I think gold is going to flourish in is when inflation is accelerating, but the Fed is not matching that with rate hikes.”
Peter said that will be a big wake-up call for investors.
The belief that the Fed would do whatever it took to beat inflation kept a lid on the price of gold. The markets believed that the central bank could successfully return price inflation to 2% and keep it there. Peter called this “a fantasy.”
That’s just not going to happen, and the markets haven’t come to terms with that.”
As Peter explained, over the last two years, any bad news on the inflation front was bad for gold, even though higher inflation is good for gold because it serves as an inflation hedge.
If inflation is a bigger problem, there should be more demand for a hedge.”
Instead, investors just assumed it would motivate the Fed to fight harder. Every hot CPI report increased the perception that the central bank would keep interest rates higher for longer. That would hurt gold and boost the dollar.
But Peter said higher inflation numbers don’t mean the Fed has to fight harder to win — it means the Fed has already lost and inflation has won.
There’s a limit to how hard the Fed can fight given how much debt is in the system, especially how much debt governments have and how much debt the banks are holding.
As much as the Fed would like to see lower inflation, they don’t want to see a financial crisis.
They don’t want to force the US government to default on its obligations. The Fed is very political, and so when it has to pick its poison, it would rather pick inflation than a financial crisis, or a collapse in the banking system, or a sovereign debt crisis.
So, when markets realize that’s where we’re going, I think gold is going to be off to the races.”
Tyler Durden
Thu, 12/28/2023 – 12:00
