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Peter Schiff Nails His Prediction about Gold After the Rate Hike

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In the weeks leading up to the Federal Reserve’s interest rate hike announcement, almost every mainstream analyst and pundit was predicting doom and gloom for gold.

Everybody, that is, except Peter Schiff. He predicted good things for gold, and it’s looking more and more like he nailed it.

14 10 22 Swiss gold

Conventional wisdom was that a rise in interest rates would indicate the US economy has recovered and is continuing to improve. If this were true, gold would lose its appeal as a safe haven and investors would begin dumping the yellow metal, driving its price down.

In fact, gold dropped only slightly immediately after the December announcement, but then rallied just as Peter predicted.

In an article he wrote before the announcement, Peter said when it comes to gold, he believed we were in “a buy the rumor sell the fact” situation:

In this case, the ‘rumor’ was a meaningful tightening cycle that would restore positive real rates, but the ‘fact’ is likely to be a symbolic 25 basis point nudge.”

Peter didn’t believe the December rate hike was the beginning of a real tightening cycle as the Fed promised, pointing out that the economic data simply does not support raising rates. As a result, Peter said this rate hike was probably going to be a one-and done deal. Instead of a series of increases, we will more likely see the Fed drop rates back to zero and initiate another round of quantitative easing.

In fact, many mainstream economists agreed with Peter, saying they believed the fed would not ultimately be able to make a rate hike stick.Further,

Peter argued that after months of posturing and rumors of a rate hike, the market had already taken it into consideration. As a result, the price of gold already reflected a rate hike. The day of the announcement, Peter went on CNBC and reiterated this view:

I don’t think there is that much downside because most of this is already built into the price. Everybody has been anticipating the Fed is going to raise rates.”

Peter wasn’t just saying this in the few days before and after the hike. In his Gold Videocast on Nov. 12, he boldly predicted no matter what the Fed decided to do in its December meeting it would be good for gold. Peter predicted that we could see a short-lived “head fake” price dip after a rate-hike announcement, but ultimately gold would rally after the Fed’s meeting, no matter what was announced.

Gold has already fallen substantially based on the fact that the Fed is going to be raising interest rates. So I think most of the downside, in fact probably almost all of the downside in my opinion, is already here. The gold market has already discounted the rate hikes.”

We did see the price of gold take “head fake” dip the day after the announcement, falling from $1078 to $1050. But now we are beginning to see what looks like a rally. Gold is above $1100 at the time of this writing, more than 2% higher than its closing price when the Fed announced its hike. There certainly hasn’t been the massive sell-out predicted by so many out there in the mainstream.


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