Peter Schiff: Gold on Its Way to 2700

On the latest episode of the Peter Schiff Show, Peter highlights the big news of the week: gold set a new all time high price. He also reviews new Personal Consumption Expenditures (PCE) inflation data, comments on Donald Trump’s proposal for a government efficiency committee, and forecasts a return to 2008-era quantitative easing policies.

To start the show, Peter gives the details on gold’s and silver’s weekly price action:

“Another week has gone by and another all-time record high in the price of gold. In fact, silver went along for the ride, setting a new four-year high per week. The price of silver got above $32.50. I think I saw gold trading above $2,685 yesterday. We did have a bit of a pullback today; gold dropped about $16. We closed the week at $2,659, but that is the highest weekly close in the history of gold.”

Gold’s continued rise is driven in part by persistent inflation, which is not as low as the Fed would like you to think: 

“The Fed’s favorite measure of inflation is the PCE, the core PCE. Now, the reason it’s the Fed’s favorite is because it’s the least accurate. It’s the measure that understates inflation the most. That’s why the Fed likes it the most. But that came out today, and the core PCE for the month of August was up 0.1%, which was a little bit better than the 0.2% for the prior month. But year over year, which is the number they’re looking at, Core PCE was up 2.7%. That’s one tick higher than the 2.6% from July.”

The inflation and debt status quo are proving harmful for the dollar, with foreign currencies strengthening against USD:

“The dollar index closed at 100.42. But in particular, the dollar was very weak today against the Swiss Franc and the Japanese yen. We’re barely hanging on to an 84 handle against the Swiss Franc. And I think the fact that you’re seeing this kind of weakness relative to the Swiss Franc and the yen, these are the currencies that are perceived as a safe haven.”

Pivoting to politics, Peter points out that politicians love to promise tax cuts, when that’s only one side of the coin. In order to reverse America’s economic troubles, spending has to be cut dramatically:

“It’s the spending. That is the cost that the private sector has to bear. It’s not how much the government taxes, but how much the government spends. Because what it’s spending is taken from the private sector, and the private sector has to absorb it. One way or the other, the government can honestly borrow the money, but that crowds out private investment. If the government borrows the money, that’s money a businessman can’t borrow to invest in plant equipment. … Now, if they borrow from the Fed, they just print the money. And so now we have inflation.”

Donald Trump’s recent proposal to install Elon Musk as head of a government efficiency committee, while rhetorically admirable, misses the point. Government action can’t be efficient, since it lacks real market incentives to allocate money and resources well:

“Even though Elon Musk may be able to be efficient when he’s running Tesla, he’s not going to be efficient in the government. It’s not the same dynamic. Now, yeah, he may be able to find a few things that you can cut. But you know what? Good luck getting him cut because every dime that the government wastes, believe me, somebody is benefiting from that waste. Somebody is getting that money. And the minute there is a threat that they’re going to lose that money, they are right at that congressman on the phone.”

With recent Fed action signaling more interventionist monetary policy in the future, Peter is not optimistic that they’ll avoid the disastrous quantitative easing programs that followed the Great Recession:

“The government never learns from its mistakes. They do something and they say, ‘Gee, that didn’t work. Let’s not do that again. That really screwed things up.’ That’s not what government does. They do something, it makes the problem worse, and they say, ‘Well, we just better do that bigger.’ They’re never going to accept responsibility that, ‘Hey, we poured gasoline on a fire, and the fire got bigger.’”

If you missed it, be sure to check out last week’s episode of the SchiffGold Gold Wrap Podcast.