Markets Are Wrong Again: QE4 & Higher Gold on Horizon (Video)
Peter Schiff got into a heated debate on CNBC this afternoon when he explained why he thinks now is a good time to buy gold. The floor traders couldn’t wrap their heads around Peter’s suggestion that the Federal Reserve might launch a new round of quantitative easing in the next year. Instead, they insisted that the futures market is accurately predicting a Fed Funds rate hike. Peter countered that the markets have been wrong before.
Highlights from the interview:
CNBC: With all of the turmoil we’ve seen in the eurozone, this was the time investors thought that gold would rally. And it didn’t. Why not?
Peter: The dollar is stealing a lot of gold’s thunder. People are fleeing to the dollar rather than gold, and that’s putting pressure on gold. But this false narrative that’s driving the dollar is this belief that the US economy is recovering. I think it’s headed back to recession and that the Fed’s about to start on a tightening campaign. I think the reality is they’re about to launch QE4. So if the markets perceived the truth, they would be fleeing the dollar too, and they would be embracing gold.
CNBC: Are you saying that a rate hike is out of the cards for the Fed?
Peter: I doubt that they’re going to raise rates. Is it possible that sometime between now the end of the year, they might do a trivial quarter-of-a-point hike just to pretend that they can get away with it? It’s probable, but I don’t think it’s likely. In fact, if you look at what Janet Yellen said yesterday, particularly her prepared remarks, all she said was that if the economy evolved as they expect (which never happens), it might be possible that it would be appropriate to raise rates. Maybe it won’t be appropriate, maybe it will. But even if it is appropriate, she didn’t say she’s going to raise them. It’s been appropriate to raise rates for years, and they’re still at zero. It’s not about propriety, it’s about expediency. I think Yellen knows this bubble is too big to pop. Interest rates have been at zero for over six years. Even raising them a little bit will prick that bubble, and that’s the last thing the Fed wants to do.
CNBC: If there is a bubble… do you think a small interest rate hike will pop it or take the top off the market in the sense that investors may have already priced this in?
Peter: I think the air is already coming out of the bubble, just with an absence of QE. If you look at all the economic data that has come out this year, it’s pretty horrible. Yet everybody dismisses it. They expect it to turn around. I don’t see it turning around. I see it getting worse. And yes, even a small rate increase will do a lot of damage. Think about how much debt we have…
CNBC: Let’s bring the conversation back to gold… In terms of the gold price right now, how are you advising your clients? Are you still telling them to buy?
Peter: I’ve been telling my clients to buy gold since the late 1990s. Yes, the last few years have seen gold pulling back. I look at it as an opportunity for people to buy more. I’m not advising short-term traders. It’s hard to tell where gold prices are going to be day-to-day, week-to-week, even year-to-year sometimes. But I’m confident that the trend that began in the late 1990s – the uptrend – is intact, that this is a pullback in a bull market. When is this pullback going to end? There’s been a lot of support every time gold goes below $1200… There has been major buying that has come in. The physical buying is there. My gold company, SchiffGold, we just had our best month in years. I talk to other precious metals dealers who report big sales. My offshore bank, Euro Pacific Bank, just saw a big increase in gold sale. So people are, in fact, buying gold. It’s just the big money, the Wall Street money, is still reluctant to buy gold. They’re probably still shorting it, because they buy into this phony narrative…
QE4, I think, is coming probably by next year, whether they raise rates or not. I think if they actually raise rates, they’re going to have to take back those rate hikes pretty quickly.
CNBC: How in the world do they raise rates and institute QE4?
Peter: No, no, no, they would reverse that. Let’s say they raise rates to 25 basis points. Then by 2016, they lower them back to zero and do QE4.
CNBC: They cannot raise rates, then lower them back to zero, Peter.
Peter: Of course they can!
CNBC: I mean, they can do whatever they want, but I don’t think that would be a sound strategy for the Fed, and I don’t think that’s something they would do.
Peter: That’s probably why they won’t raise rates at all. That’s why they’ll probably keep them at zero…
CNBC: If price is truth, and the price of the Futures markets is the collective wisdom of everybody in the world. If you look at Fed Funds Futures, they’re absolutely a lock… for the Fed to raise rates by the December meeting. 75% likelihood that they’ll increase by December, and then the likelihood that they’ll increase even more continues as you go out further in the Fed Funds Futures. So why is everyone else wrong and you’re right?
Peter: Well, I remember the sub-prime mortgages that we were shorting in 2007. The market said it was a lock, that those were good mortgages. They were trading above par. Everybody thought that the borrowers were going to pay the money back. There are a lot of circumstances where everybody is wrong…
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