Peter Schiff: The Gold Train Has Left the Station

Gold rallied by over $50 an ounce last Friday and the rally has extended into this week with the yellow metal moving back above $1,700 an ounce. In his podcast, Peter Schiff explained why he thinks that gold has bottomed and this is a significant reversal.

Commodity prices in general have been rallying over the last several days. News that China might be close to ending its zero-COVID policies sparked the rally. Industrial metals and oil both saw big gains.

This is bad news for the Federal Reserve.

It’s going to see inflation being pushed higher even as the economy continues to soften.”

Increased Chinese demand as the country’s economy reopens could also be a problem for the Fed. The central bank focuses on fighting inflation by lowering demand. But as Peter pointed out, demand is global, not just domestic.

I always talk about how we can have higher inflation during a recession because I realize that prices are not just determined by the ability of Americans to pay, but it’s the ability of everybody all around the world to pay. Americans are competing with foreigners for the same goods. And, it’s also not simply a function of demand, but it’s a function of supply. Even if demand in America goes down, supply in America could go down even more because demand outside America goes up, and supply is diverted from the United States abroad. So, even if American consumers are buying less, there are even fewer goods available for them to buy. And so, what ends up happening is fewer goods get bought, but the ones that do get bought are bought at ever-increasing prices.”

Dollar weakness could further exacerbate the situation. Despite Jerome Powell’s hawkish comments after the November Fed meeting, the dollar failed to make a new high.

I think as it becomes more obvious that the dollar has seen its highs and is headed lower, I think you are going to get a rush to liquidate long dollar positions. So many people have been piling into the dollar as the only safe haven, as the least-dirty shirt in the hamper, the dollar milkshake theory — whatever it is, a lot of people have been buying dollars, and they are long dollars. The assumption was that the dollar would keep on rising. But the minute that momentum is lost, there is tremendous downside as everybody looks to unwind those positions.”

Peter said another signal that the dollar has reached its high is gold has reached its low.

Of all the big moves in the market during the week, I think the most significant move was the one made by gold.”

Gold made a new 52-week low interday last Thursday (Nov. 3). But on Friday, gold rallied with the price rising by $52.

If you look at the trading pattern for gold, it was an outside reversal week, where during the week, gold took out the low from the prior week, it took out the high from the prior week, and then it closed above the prior week’s high.”

Peter called it “a very significant reversal.”

And it continued this week with gold rallying back above $1,700 an ounce on Tuesday (Nov. 8).

Silver charted a similar rally. The difference was that silver did not make a new 52-week low last week.

When you see gold making a new low, but that new low not being confirmed by silver, that is an indication of a bottom because silver is normally weaker than gold until you get to the end of the bear market, and then silver starts to have some relative strength in relation to gold.”

Peter said gold mining stocks also confirmed the bottom. As a group, miners also failed to make a 52-week low even as gold did.

What makes me more confident in this call is the fact that even though gold itself made a new 52-week low on Thursday, the gold stocks did not. And then we had the explosive move up on Friday where both the GDX and the GDXJ rose better than 10% on the day. It is very rare that you see gold stocks up 10% in a single day.”

While both $50 up-moves in the price of gold and 10% rallies in mining stocks are rare, Peter said he thinks it will become less so in the coming months.

I figure, before too long, we’re going to finally see the price of gold rally by $100 in one day.”

Peter also pointed out that we’ve already seen healthy demand for physical gold.

You can already see the demand in physical gold and silver, where demand is skyrocketing. Central bank demand is skyrocketing.”

In fact, central bank demand set a Q3 record with a huge increase in unreported buying. Many speculate that the mystery buyer was China.

That makes a lot of sense to me. I think China is really trying to stockpile its gold, especially if China is thinking of doing something, maybe making a move against Taiwan. They’re not going to do that until they’ve really shored up their gold holdings. They want to divest themselves of US dollars and US Treasuries and be loaded up with gold before they do anything that may invoke sanctions.”

Peter said it’s only a matter of time before investors realize that the price of gold is not only going to rise commensurate with the cost of producing it, but it’s going to rise more.

Because as investors lose confidence in the ability of the Fed and other central banks to rein in inflation, now they’re more motivated to hedge against inflation because they can no longer count on the central banks to protect them. They have to look for their own protection, and they can find it in gold.”

In this podcast, Peter also talks about the continued decline in tech stocks, and the decline labor force participation rate.