The Dollar Has No Floor, and Gold Has No Ceiling (Video)
In another interview on Yahoo! Finance, Peter Schiff contradicted the conventional narrative of the dollar’s future. He argued that the dollar’s brief, but dramatic dip this week is only a taste of what’s to come. Just like those who invested in subprime mortgages, people will get caught in the reversal and implosion of the dollar. This will likely come on the heels of massive consumer inflation thanks to the endless money-printing of global central banks. When this happens, investors will return to gold as a store of wealth. Peter pointed out that gold has no ceiling because there’s no limit to how low the dollar can sink.
Follow along with this partial transcript:
Peter Schiff: I’m surprised that [the dollar] rallied this much, but it doesn’t mean that it’s permanent, because you have everybody speculating. The conventional narrative is that the Fed is going to be raising rates and the rest of the world is going to be easing. It’s based on that that speculators have been up on the dollar. We got the current account deficit that came out today. It jumped by 14 percent, that’s the biggest increase in 2 years. This would normally be negative for a currency. And of course that current account would be even higher if the Fed raised rates, because we’d have to pay more interest to our overseas creditors. The fundamentals are weak, but the fundamentals don’t matter right now when you’ve got this false narrative and the traders are running with it like a horse with a bit in its mouth. We got a small taste yesterday of what could happen. The dollar had its biggest 1-day decline since 2009. They reversed it overnight… it’s like reflexive action right now to buy the dollar on a dip. But when traders wake up to reality and realized how wrong these bets are, they’re going to unwind these trades and the dollar is going to implode very quickly. I think the people who have been betting on the dollar, and who have made a lot of paper profits, if they’re caught in this when it reverses, they’re going to end up losing a lot of money.
Host: [But if you’ve shorted the dollar, you’ve lost a lot of money.]
PS: Especially if you’re leveraged and you’re betting against the dollar. People were losing money betting against subprime for several years until the bubble burst. The people who were buying those mortgages and paying above par for them on leverage thought they were so smart until the market collapsed. If the government didn’t bail all these banks out, they all would have failed based on these bad bets. The question is, how many banks are going to fail when the dollar collapses? I wonder how many of our lending institutions are levered up short along the dollar. We’ll see what happens when they get caught…
Host: [How are you positioned now, considering the dollar?]
PS: Well I’ve been positioned the same way for a long time. We’re not leveraged. What we do with our clients is we invest in overseas stocks and we get our exposure to foreign currencies through the foreign stocks that we own. So we own stocks in places like New Zealand, Singapore, Hong Kong, Switzerland, Norway, Canada, and various places around the world. So far, over the last couple of years, the currency exposure in the short run has worked against us, even as the foreign stocks that we own have generally risen, they haven’t risen enough to offset the strength of the dollar. But I think that’s all temporary. I think when the dollar finally implodes, when people figure out the real state of our economy, and what the Fed is really going to do, then I think all those gains are going to be revealed. They’re being obscured right now by the overvaluation of the dollar, but I think the real move in the dollar is still going to be a crash.
Host: [So you’re bullish on gold?]
PS: Absolutely. It’s the same scenario. Traders are bearish on gold because they’re bullish on the dollar, and they believe the Fed’s going to raise rates. When they realize that they’re not, and they have to rush to unwind these short trades and get back out of the dollar — If you thought gold went up a lot when the Fed did QE1 and 2, wait until you see what it’s going to do when the Fed does QE4.
Host: [Gold has come down this year, where do you see it going from here?]
PS: I think it’s going a lot higher. I’ve thrown out numbers — 2,000, 5,000. Ultimately, I can’t tell because there’s no real ceiling on the gold because there’s no floor on the dollar. When people realize that we can never raise rates, and it’s permanent QE, and the Fed can never shrink its balance sheet, and has no ability to control inflation, ultimately it has to let it run rampant and there’s no place to hide. You’ve got even the soundest central banks around the world deliberately creating inflation with negative interest rates, promising to debase their currency. In fact, the new mantra is that price stability is bad. We need rising consumer prices. If we don’t force consumers to pay more money for the things that they need and for the things that they want, then all hell’s going to break loose. So all central banks are now creating inflation. It’s like firemen coming to your house to set fires, not put fires out. That’s what we’ve got now with the central banks. With all of these central banks promising to destroy the value of money over time, what are you going to do to preserve your wealth? People are going to turn to gold in a big way all around the world.
Host: [So you expect this decline of the dollar to happen forever? No matter how long it takes, you expect this?]
PS: It’s not going to take forever. People said the same thing to be about the housing market, “How long are you going to rent your home?” I rented for years and I eventually bought a house, and I paid less than half than the guy who sold it to me paid. But I rented for a long time waiting for that to happen. I don’t think it’s going to take decades. I’m surprised that it’s taken this long. But I do believe that the fact that we’ve had to wait so long, it’s an even bigger payday. All the problems have gotten bigger because we’ve been able to delay the day of reckoning. I can stay solvent if I’m not on leverage. That applied to traders who have levered up. If you’re in options and you have a time limit or have borrowed a lot of money, that’s a problem. If you just own positions for cash, especially if you own foreign stock and you’re just collecting dividends, time is your friend. You can wait it out and eventually you’re going to get paid.
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