Gold has pierced another significant level, pushing above $1,800 an ounce on Wednesday. That’s the highest spot price for gold since 2011.
Breaking through $1,800 was a significant move for the yellow metal, but during his podcast earlier this week – before gold breached that level – Peter Schiff said he thinks gold has a long way to run up, and he explained why the dynamics are different now than the last time gold was above $1,800.
The resurgence of coronavirus has led many areas of the country to shut down again – a worst-case scenario for those hoping for the mythical v-shaped recovery. This is spurring safe-haven demand. As Michael Hewson, chief market analyst at CMC Markets UK, put it, “Investors are hedging their exposure to riskier assets simply because there’s a growing and widening belief that any recovery is unlikely to be v-shaped. Markets generally tend to operate through a prism of optimism and that optimism is being tested at the moment and gold is benefiting from that.”
But it’s not just safe-haven buying. Central banks have pumped trillions of dollars into the economy, driving real yields below zero. Peter has called the Federal Reserve’s response to the economic meltdown “a monetary Hail Mary.” And there is speculation that they will have to do even more as the recovery lags. As Ron Paul put it in a recent article, the Fed is getting desperate.
Meanwhile, stock markets have continued to generally go up, led by the NASDAQ and tech stocks. As Peter put it in his podcast, nobody is paying attention to these stock valuations.
People are buying these stocks simply because they’re going up. They’re ignoring everything else. And where is the money coming from? The money’s coming from the Fed. We’ve got all this cheap money. We’ve got zero rates. We’ve got quantitative easing. We’ve got the Federal Reserve buying junk bonds. And so it’s all that liquidity fueling the bubble and allowing people to ignore any of the fundamental problems because they just have to invest. They have to be long. But what happens is as the number of stocks going up continues to get smaller and smaller and smaller because the fundamentals keep crushing a larger and larger percentage of the market, then all of the money has to be funneled into a smaller pool of stock.”
In a nutshell, the entire market is being driven by a small number of stocks. Peter called this “extremely unsustainable.”
It doesn’t take much to break this.”
When Peter recorded his podcast on Tuesday, gold was still knocking on the door of $1,800. He called it a coiled spring. He predicted that the market would eventually exhaust all the sell orders around $1,800 and it appears that’s exactly what happened on Wednesday.
But can the gold market maintain this momentum? We’re nearing record territory that the yellow metal couldn’t hold nine years ago. Peter pointed out that back in 2011, gold actually only traded about $1,800 for a few weeks.
A lot of people are reluctant to just buy these gold stocks, or even buy silver, which continues to just lag. … But I think a lot of investors still don’t think gold’s going to get through $1,800. They just assume that was resistance in 2011, that it’s still resistance in 2020. Well, a lot has happened in nine years, Specifically, a lot of money has been printed in the last nine years.”
Although there still seems to be a lot of mainstream skepticism of the yellow metal, with gold knocking on the door of $1,800, we’ve started to see the mainstream sit up and take notice. As we reported over the last couple of weeks, a number of big players are calling for $2,000 gold in the next 12 months. As a Bloomberg report put it today, “Record-high gold prices are in sight.”
Peter said the dynamics are much different now than they were in 2011. Gold has built a solid base since about 2013.
And we’ve got tremendous support now in the market that has been built off of that base. And I would say the real support right now in gold is probably about $1,500. Even though the bottom of that big saucer is around one thousand, we’re not going back down there. We’ve built such a massive amount of support that I would say there’s really not much room for the price of gold to go below $1,500 from where it is now. So, at $1,800, we’re only about $300 above that massive 7-year support that’s been building in the market, whereas we didn’t have that in 2011.”
In a nutshell, we are barely above massive support.
We have built an incredibly strong foundation from which a massive bull market is going to be built – on this foundation.”