Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Peter Schiff: Inflation Is Good for Gold; High Inflation Is Better for Gold

  by    0   1

The bond market is getting clobbered. Long-term interest rates are rising and that is putting significant pressure on gold. Peter Schiff talked about rising rates and the gold market in a recent podcast. He said the rise in long-term yields is a function of inflation and people seem to forget that inflation is good for gold.

On Tuesday, the yield on the 10-year Treasury was just under 1.3%. It was just last month that the yield hit 1% for the first time since COVID. In other words, the 10-year yield is up 30% in just one month. That is a huge move in the world of bonds. Meanwhile, the yield on the 30-year Treasury hit 2.09%. It just eclipsed 2% on Friday.

But even with this big rise in interest rates, the only markets that seem to be feeling the effects are gold and silver. On Tuesday, gold sold off and fell back below $1,800 an ounce.

The knee-jerk response to rising interest rates was to sell gold and silver, which is what happens every time. It’s kind of like a reflex. It’s kind of like Pavlov and the dog. You see a big drop in the bond market, you see a spike in interest rates, oh, you sell gold.”

This is playing into the narrative that a stronger than expected economic recovery will force the Federal Reserve to raise rates prematurely.

Meaning even though they aren’t thinking about thinking about thinking about raising rates, they’re going to raise them because the economy is just so strong because of all this stimulus that we’re going to get surprise tightening, and for some reason, no other markets are being affected.”

Peter raised an interesting question. If we’re really going to get premature tightening from the Fed, why isn’t the stock market tanking?  High growth stocks, particularly in the NASDAQ, would be the most sensitive, especially if it is inflation that is pushing rates up in the bond market.

Peter thinks that’s the case and there are plenty of inflationary signs. For instance, the price of oil rose above $60 a barrel. And Peter said many of his commodity-based stocks were up big on Tuesday.

Everything that I own that is sensitive to inflation had a big day today, with the exception of the mining stocks – gold and silver – which should have had the biggest day of all. Because inflation is actually good for gold. It’s better for gold and gold mining companies and silver than a lot of these other stocks that are rising. Because people are not worried that rate hikes are going to hurt the copper market, or the corn market, or the oil market. For some reason, they only think rate hikes are going to hurt the gold market. And they don’t think it’s going to hurt the stock market where it actually might hurt the most.”

Peter said all of this talk about a strong economy forcing the Fed’s hand is ridiculous because we don’t have a strong economy. It’s a weak economy. But Peter conceded we may well see GDP growth. After all, if you print enough money and let Americans spend it, you can juice GDP.

But that isn’t economic growth. That’s just a bubble. And in order to maintain that bubble, the Fed has to keep interest rates at zero. If the Fed does what Wall Street now thinks they’re going to surprise the market and do, they’re going to undo the recovery.”

Peter said he thinks people are mistaking the rise in interest rates as the result of economic growth, and they believe the strong growth will pump up corporate earnings and that will trump higher interest rates. Peter called this wishful thinking.

This whole market is built on a foundation of cheap money. The earnings, in fact, are a consequence of the cheap money. So, I think Wall Street is not going to get the unexpected tightening that they think they’re going to have. But what they are going to have is an even bigger increase in long-term interest rates than what they expect.”

Instead of fighting inflation by raising short-term rates, the Fed will surrender to inflation. In fact, it will create even more inflation by trying to stem the rise in interest rates by buying even more bonds and printing even more money. Nothing is going to stop long-term yields from rising other than the Fed.

But how does the Fed stop it? Well, it’s got to print a bunch of money and buy these bonds that nobody else will buy. Because people can see that inflation is picking up and they don’t want to ride the market down by watching their wealth dissipate in bonds.”

Even with the rise in nominal interest rates, real yields are still negative.

The point is even if the Federal Reserve does surprise the markets and prematurely raises rates, even though they’re not even thinking about thinking about thinking about doing it, they’re not going to raise rates enough to bring yields positive. They are always going to be behind the curve. And this is extremely bullish for gold. That is what the markets don’t get. Rising bond yields are bullish for gold because it reflects inflation. Inflation is good for gold. High inflation is better for gold.”

And more inflation is coming down the pike. The economy can’t survive higher interest rates. There is too much debt. The Fed will have to step in and buy more bonds to hold rates down. And that means more money printing — more inflation. And if rising rates start to spook the stock market that will really spell trouble for the central bank. Eventually, the market will roll over. And how will the Fed respond? It will print even more money.

At some point — I don’t know when – but at some point, and I think it’s not too far off, the market is going to react to a falling bond market by buying gold, not dumping it.”

WhyBuyGoldNowBanner.070815.590

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Peter Schiff: Gold Is an Inflation Safe Haven, Not Bonds

Gold and bonds are both considered to be safe havens. But in a recent podcast, Peter explained why bonds are not a safe haven in an inflationary environment. In fact, bonds – including US Treasuries – are risk assets when inflation is running hot. If you want safety from inflation, you need to buy gold.

READ MORE →

Peter Schiff: Non-Transitory, Worse Than Expected Inflation

September CPI came in above expectations. At this point, even the central bankers at the Federal Reserve are having a hard time sticking to the “transitory inflation” narrative. In his podcast, Peter Schiff talked about the CPI report. He said it reveals that we’re entering an inflation super-cycle and perhaps the markets are starting to […]

READ MORE →

Peter Schiff: Stagflation Is Here!

We got the highly anticipated employment report on Friday. It came in far below expectations. But despite weak economic data, bond yields are rising, along with the price of just about everything. Meanwhile, a gold rally fizzled. Peter Schiff talked about it during his podcast, explaining just how badly the markets are misinterpreting the data. […]

READ MORE →

Peter Schiff: This Is a Real Twilight Zone

Peter Schiff says we’re living in a financial twilight zone. Despite signs of persistent high inflation, gold continues to languish. Peter talked about what’s going in this bizarro economy during his podcast.

READ MORE →

Peter Schiff: The Fed that Cried Taper

The Federal Reserve wrapped up its September FOMC meeting Wednesday and once again left its extraordinary loose “emergency” monetary policy in place. Quantitative easing continues unabated. Interest rates remain at zero. But the Fed did signal it may begin to taper quantitative easing “soon.” In his podcast, Peter Schiff broke down the FOMC statement and […]

READ MORE →

Comments are closed.

Call Now