Economic Weakness Will Trigger Canadian Gold Rush (Video)

Canadian television network BNN spoke with Peter Schiff about the US economy and the potential for gold in Canadian dollars in 2015.

Follow along with this transcript of Peter’s responses:

Peter: I think we’re coming off a stimulus reduced high. As the effects of QE wear off, the US economy is returning to recession. I think the markets are going to be very disappointed with the weakness in the earnings reports that they’re going to see, [and] a sharp weakness in the US economy, which I think this going to lead to a lot of layoffs. I think a lot of companies that hired US workers who are reluctant to lay them off in the third and fourth quarters of 2014 – when they really get a true look at the economy and their earnings, I think you’re going to see a lot of layoffs. Which means the unemployment numbers are going to pick up. Forget about a rate hike by the Fed. In fact, I think the Bank of Canada, which made a mistake – I think they’re going to regret their last rate cut. They’re going to be raising interest rates before the Fed on a pickup in Canadian inflation.

Peter: You know, I think the Canadian central bank is going to make our weatherman look good. They thought this was going to be a big storm. I think the Bank of Canada overreacted to a slight downtick in inflation. They panicked with that rate cut. First of all, I think the reduction in oil prices is temporary. I think you’re going to see a move back up in oil prices later in the year. I also think, though, that any reduction in employment activity that might surround the energy sector could be made up for in the mining sector. You know, gold prices right now are above 1600 in Canadian dollars. I think before the end of the year they’re going to rise above 1800, which would be a new record high for the price of gold in Canadian dollars. I think that’s going to usher in a Canadian gold rush. So if anybody loses their jobs in the energy sector, they can get a job in the mining sector. The United States doesn’t have that gold industry to fall back on here, and our production has been declining. It’s a very small part of our economy. Not so in Canada.

BNN: Peter, that’s a pretty big statement to say we might have another gold rush here in Canada. I’m wondering what would the driver of that be? Is it just the fact that the gold price has been low for so long, or is it going to be driven by fear and central banks continuing to stimulate their various economies.

Peter: Well, first of all it’s not low. I just said we’re over 1600 Canadian dollars an ounce. That’s 200 Canadian dollars from an all-time record high. So gold prices are pretty high. I think they’re going to make a new record high this year. Meanwhile, oil prices have come down. That helps bring up the profitability of mining, because energy is a big part of the cost structure. I think the profits are going to drive the gold rush. I think it’s going to happen this year. I don’t just think gold prices are going to go up in Canadian dollars. I think they’re going to go up in all currencies, including the US dollar. All these central banks are too loose. The Bank of Canada is too loose, the Fed is too loose, the ECB – they just launched a QE program that is going to fail miserably.

Peter: Again, the only thing QE is going to do is drive up consumer prices. It’s not going to drive up economic growth or unemployment, except maybe for older people who unfortunately have to come out of retirement to afford the higher price of food. All this cheap money all around the world is going to lead a rush into gold everywhere. Canada is in a good position to benefit. I also think when the US dollar turns, and it will turn when the Fed doesn’t raise rates but launches QE4 – that’s going to be very bullish for oil prices. They’re going to go back up, so that will help out the Canadian energy sector.

BNN: Let’s talk about that. What do you think is actually on the mind of the Fed today given the poor earnings? We know they’re not equity strategists per se, but they are obviously looking for a read on the US economy. What do you think they’re thinking? They’ve got their two day policy meeting starting today… Expectations are that they will raise rates in 2015. What’s going through their minds?

Peter: Well I don’t think they ever intended to raise rates, but they couldn’t come out and say that. So they had to bluff. I think they’re waiting for the right time to announce that they’re not going to do it or postpone it. But they want to act like it was a last minute decision, that it was unexpected based on circumstances beyond their control. They can’t admit the truth: that they have the economy so addicted to cheap money that if they take away even a little bit of it, we go into a complete economic withdrawal. I think they’ve been biding their time, and I think that the Federal Reserve could not have been this incompetent to actually believe the things they were saying. I hope that’s not the case. I hope they were just lying, because they’re afraid to tell the truth, because they don’t think the markets can handle it. So they’re trying to finesse this thing. Ultimately, they’re going to do QE4. They’re going to come up with some excuse, and it doesn’t matter what it is. It might as well be that the sky is blue… They can’t no come back with quantitative easing, because that’s the only thing keeping the phony economy going. That’s the only thing keeping the stock market up, the real estate market up. It’s the only thing keeping the government from having to declare bankruptcy… It’s the Fed action that is preventing a real recovery. It’s why the problems on Main Street keep getting worse, because the Fed is diverting all the resources that we need to build the real recovery…

BNN: You did say that you think the US dollar will decline, or ultimately reverse the trend that it’s been on… As we look at the earnings and the reports today, all of these company’s managements are citing the stronger US dollar as the reason for the weakness that they’re seeing. Do you believe that? Do you think that there is greater weakness and they’re using the US dollar strength as an excuse here?

Peter: I think a lot of companies are going to use that as an excuse. To some extent, in the very short run, it’s legitimate. If you have multi-national earnings, and they were coming in in these other currencies, you haven’t had a chance to change your pricing structure – it is going to be part of the reason earnings are going to be disappointing. And a lot of the companies are going to try to cut costs to make up for the lost earnings. I think that’s going to come in the form of layoffs. But ultimately, I think everybody has this trade wrong. Everybody is piled long the dollar. I think people are going to lose a lot of money betting on the dollar. Just like a lot of people lost money betting against the Swiss franc. They thought they were making money for a while, and then they lost all their profits in a spectacular decline. I think that this is the trade you want to fade. The dollar rally is all based on the false expectation of a US recovery and a tighter Fed. Nobody is expecting renewed recession and QE4, but that’s exactly what’s going to happen.

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