Peter Schiff: You’ll Need Gold When the Fed Loses This Inflation Fight

Some people in the mainstream have been talking about gold’s demise as an important financial asset. Meanwhile, central banks continue to buy gold. What are the gold naysayers missing? Peter Schiff appeared on Fox Business with Charles Payne to talk about the price of gold and why some investors are starting to realize they’ll need gold as the Fed loses its inflation fight.

Payne opened up the interview by saying, “You’ve heard about the death of gold a million times. But what is it that people forget about gold? When it’s going down, moving flat, not moving, and it feels like, OK, it’s no longer what it might have been in the past.”

Peter said, “I didn’t get the memo!”

And had I gotten that memo, I would have just thrown it in the trash. But what a lot of people don’t realize about gold is that it’s money.  It is liquidity. It’s everything else that loses value in relationship to gold. Gold is a better form of money than anything governments have come up with to replace it. And in times like this, where we have inflation that’s going to run out of control, and central banks that are powerless to rein it in because they’ve created it, and they’ve created economies that are dependent on it, more and more people, including central banks, are going to be returning to gold.”

Peter pointed out that gold sold off based on the notion that the Federal Reserve was going to win its fight against inflation. We had a rally in gold after the Bank of England surrendered to inflation and pivoted back to lose monetary policy to rescue its pension system. Peter said some people might be starting to realize that the Fed isn’t going to win either.

The Bank of England was just as committed to fighting inflation as Powell, but as soon as it created the beginnings of a financial crisis, they did an about-face and went right back to quantitative easing. I think the same predicament is going to befall the Federal Reserve, and before too long, inflation is going to take a back seat to an even greater crisis — a financial crisis and a worsening recession. And the Fed is going to go right back to more quantitative easing. There’ll be no more rate hikes. In fact, there may be rate cuts. Inflation is going to be nowhere near 2% when they do that. In fact, it’s headed closer to 20%.”

Payne agreed with Peter, saying the Fed’s best weapon has been “jaw-boning,” and that he doesn’t see the central bank going as far as it claims. He also brought up the issue of the $31 trillion national debt. Will higher interest rates spark a debt crisis for the US government?

Peter reminded us that a year ago, Treasury Secretary Janet Yellen said there was no reason to worry about the national debt because interest rates were so low.

Well, now interest rates have skyrocketed.”

When Janet Yellen made that comment, the yield on a 1-year T-bill was about .25%. Now it’s 4%.

You’ve got a 16-fold increase in the cost of funding that debt. And remember, that debt keeps having to be rolled over. The government has very short financing on this national debt. So, it’s already a problem. And it’s going to become a much bigger problem. It’s one of the reasons the Fed is going to chicken out in the fight against inflation. Because the US government would be forced to default on that debt if it actually let interest rates rise high enough to bring inflation down to 2%.”