The following article was originally published at the Tenth Amendment Center.
The founding generation generally took a dim view of paper money. In a letter to Edward Carrington, Thomas Jefferson wrote, “Paper is poverty. It is only the ghost of money, and not money itself.” Today, some investors are embracing the views of the Founders, recognizing the value of gold and silver as sound, stable money.
Investor and creator of Things that Make You Go Hmmm Grant Williams recently said he plans to buy gold regardless of what the Federal Reserve does or how its daily mechanizations impact the price. In fact, during an interview at the Mauldin Strategic Investment Conference, Williams said he doesn’t really pay attention to the price of the yellow metal:
I think what the Fed does could have short-term impact, but I don’t buy gold around it. I don’t buy gold at $1,100 because I think it’s going to $1,200, I buy it for what it does, not what the price is, the price is the last consideration for me.”
So what is it that gold does? It retains its inherent value, unlike paper money, which depreciates over time as central bankers print more and more of it. In a nutshell, Federal Reserve paper does not count as stable money.
In his Gold Videocast earlier this week, Peter Schiff said the Federal Reserve will likely use turmoil in the markets following the Brexit vote as an excuse not only to renege on its much anticipated rate-hike, but to cut rates and launch QE4. In fact, Peter was saying the Fed would end up cutting rates in the near future long before Brexit.
Well, the mainstream is catching up with Peter’s thinking much faster than normal this time around, and some analysts are becoming more bullish on gold as a result.
As we reported earlier this week, mainstream talking heads are already discussing the possibility of a Federal Reserve rate cut on major media outlets. Now we have a long article in the Daily Mail making the case that the Fed will take a knife to interest rates and gold will benefit:
Do you believe the economy is “rigged?”
If you do, you’re not alone.
A new poll by Marketplace and Edison Research found that a staggering 71% of Americans believe the economy is rigged.
The poll based its findings on answers to this question: which of the following comes closer to your opinion on the economic system in the US?
- The economic system is rigged in favor of certain groups
- The economy system is fair to all Americans
- Don’t know
Rigged was the dominant answer across all demographics – black, white, Hispanic, Republican, Democrat, and independent. According to CNNMoney, the poll supports what it hears from everyday Americans:
Even with Congress giving final approval to a bill that will allow Puerto Rico to restructure its debt, the US territory will default on a $13 billion general-obligation debt on July 1.
A $1.9 billion payment in principle and interest is due Friday. Puerto Rico will renege on the payment to bondholders despite a constitutional provision that says the debt has top-claim on the government’s funds. Puerto Rico Governor Alejandro Garcia Padilla said the commonwealth could not raise enough money to cover the payment even if he completely shut down the government.
As Bloomberg pointed out, Puerto Rico’s inability to make the payment shows just how bad the situation is:
The default signals the depths of the crisis on the island, which had been tapping whatever funds it could to avoid missing payments on securities backed by the strongest legal pledge…It would be the first payment failure from a state-level borrower on debt backed by the full power to raise taxes since Arkansas’s in 1933. Since August, Puerto Rico had already defaulted on debt issued by three agencies, including the Government Development Bank, though creditors were left with little recourse because the securities were backed by weaker legal safeguards.”
If you’ve been waiting to buy gold and silver the wait is over.
In his most recent Gold Videocast, Peter Schiff looks at how the price of silver has just surged to a high it hasn’t seen since January of last year. In the aftermath of Brexit, Peter takes this as a good sign that the prices of both gold and silver are about to really break out and begin moving up in significant bursts. Now that gold is holding steady above $1,300 an ounce, investors who have been waiting on the sidelines to buy should consider acting soon – before sellers start hoarding their metals as the prices move up.
Peter’s forecast is based less on the United Kingdom leaving the European Union, and more on what is going to happen in America. Peter reiterated what he said in his recent appearance on CNBC’s Trading Nations: the Brexit basically gave Janet Yellen a get out of jail free card:
I believe the Federal Reserve is going to use the turmoil in the markets that followed that vote as the excuse it’s been waiting for not only not to raise rates, but to cut rates and to launch QE4. In fact, that is the main reason, I believe, that the markets have recovered somewhat from their Brexit related losses. Because if you look at the financial markets, they are now pricing in for the first time a higher probability that the next move by the Federal Reserve will be to cut rates, not to raise them.”
Marc Faber, publisher of the Gloom, Boom & Doom Report, had some simple advice for a post-Brexit world – own some gold.
So, what caused UK voters to abandon the EU in the first place? There are many theories as to what drove the leave vote, but Faber said it really comes down to one thing – frustration with the current system.
If you go to England, London is doing very well. The financial sector in London is doing well. The asset economy is doing well. But ordinary people aren’t doing well…There is dissatisfaction with the system, and this is what the vote is about. And I believe it would be better if the arrogant bureaucracy in Brussels would be contained and reduced in size.”
Faber said economic growth around the world is slowing, and he offered the same reason Peter Schiff did on his recent Fox Business appearance – central bank intervention. In a segment quoted by Bloomberg but not included in the video clip, Faber said we can expect more of the same from central banks in the wake of Brexit. Like Peter, he thinks the Fed will use the post-Brexit turmoil to engage in even more monetary intervention:
If Brexit is used as an excuse, the central banks will print more money, QE4 in the US is on the way and the depreciation in the purchasing power of currencies will continue. In that situation, you want to own some gold.”
Mainstream media pundits and government officials continue to talk about a growing US economy, but signs in America’s heartland point in the opposite direction.
Peter Schiff has made the case that the stagnating economy is driving this strange election cycle, and helps explain the rise to prominence of Donald Trump and Bernie Sanders.
But the election isn’t the only sign everyday Americans sense problems in the economy. Their behavior also reveals concern.
According to a MSN Money report, Americans have drastically reduced eating out. Growth in the fast food sector has come to a screeching halt:
Visits to fast-food restaurants had been growing at a quarterly clip of 2% since September 2015, but haven’t grown at all in March, April or May, according to as-yet-unpublished data from market research firm NPD Group Inc. When fast-food growth comes to a halt, ‘that’s a red flag because it’s been an area of growth and it’s 80% of the industry,’ NPD restaurant analyst Bonnie Riggs said.”
All of the talk over the last few days has focused on Brexit. But Peter Schiff says people are ignoring some bigger issues. On Monday, he appeared on Fox News Business and continued pounding this theme, calling Brexit a “day of reckoning,” and reiterating a point he made on CNBC’s Trading Nation – that the Fed now has an excuse to cut rates and launch more quantitative easing:
First of all, this is not about Brexit. Brexit is all the media. Brexit is the catalyst. It is like the match that lights the tinderbox. The markets are artificially propped up by central banks, by cheap money, by QE, and it’s all hype and hope. The markets never should have been where they were. And what Brexit is doing is challenging the belief that the markets have the confidence in central bankers to keep all these bubbles in the air…There’re a lot of dominoes that are going to come down. Yes, the Fed is going to use this maybe as an excuse to cut rates and do QE 4. It was looking for an excuse for a long time. But we have some real serious problems that go beyond what is happening in Britain.”
My how things change.
This time last month, it was a foregone conclusion that the Federal Reserve was going to raise rates in June. Then the government released a shockingly bad jobs report and suddenly that rate hike was taken off the table. Even so, many pundits believed July would finally bring the much anticipated boost in the interest rate. But in the wake of the UK’s decision to leave the EU – that one is pretty much off the table as well.
In fact, many analysts now believe Janet Yellen won’t boost rates at all in 2016.
Peter Schiff recently appeared on CNBC’s Trading Nation and said the Brexit vote was “just what the doctor ordered as far as getting her out of jail free,” because now Yellen has the perfect excuse not to raise rates.
In a report released in the wake of the Brexit vote, the World Gold Council predicted “strong and sustained inflows into the gold market.”
In the immediate aftermath of the referendum, gold surged, reaching as high as $1,358.54 per ounce before falling back later in the day Friday. It was the highest level for gold since 2014. As World Gold Council analysts put it, gold did exactly what it was supposed to do:
Gold is fulfilling its classic role as a safe haven asset and performing exactly as the many investors that bought it in the run up to the referendum will have hoped. We expect to see strong and sustained inflows into the gold market driven by the intense market uncertainty that now faces the global markets.”
In fact, the sale of physical gold in the UK was brisk in the weeks leading up to the vote. The World Gold Council said it expects that trend to continue and even accelerate:
Purchases of gold coins by small retail investors, which were already up sharply in the months running up to the vote, should accelerate further.”
