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Peter Schiff: The Stock Market Needs the Fed More Than Gold Does

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The markets got clobbered again on Wednesday (Sept. 23) with the exception of the US dollar, which hit a 2-month high. Not even the bond market managed to rally even with the stock market selling off and a strong dollar. Gold was down nearly $40 on the day and silver hit a 7-week low.

One of the big drivers of the sell-off was the perception that the Fed might be done with stimulus. In his podcast, Peter said this notion is wrong — at least in the long-term. But even if the markets were right, the stock market needs Fed stimulus a lot more than gold and silver do.

Peter said he doesn’t think there’s a lot more downside to gold and silver.

I said on Monday I thought we had a little room to fall for some follow-through. But I do expect some significant buying to come in.”

He noted that there is a lot of “hot money” in the markets and some of that has found its way into precious metals.

There is going to be a lot of short-term volatility in any market when you have the amount of hot money in the markets that we have today, thanks to the Federal Reserve. Speculative money is very cheap to come by, so there is a lot of it being invested.”

As a result, any downturn gets exaggerated. But Peter said this is actually a bullish indicator.

I think there’s more fear in the gold market, certainly in the mining stock market, than there is greed. And I think that simply reflects the ‘wall of worry’ that this bull market continues to climb. Because I don’t think there’s ever been a fundamental backdrop that has been stronger for gold and silver.”

Yet despite that outlook, you don’t have that sentiment shared by investors.

They’re more nervous. They’re worried. They’ve got one foot out the door. Eventually, that’s going to change.”

Imagine what will happen in the gold and silver markets when these folks become outright bulls like Peter.

It’s coming. It’s going to be there. But it’s down the line. And I think it’s going to happen at significantly higher prices than those that exist today. So in the meantime, just take advantage of their lack of understanding and their fear, their nervousness behind their positions, and when they’re selling, you buy. Just use these dips as buying opportunities.”

Peter said the thing driving the current selloff is the idea that the Federal Reserve is finished when it comes to stimulus. Jerome Powell has not indicated that the Fed cavalry is about to come riding in with more saddlebags full of money.

The markets want to know that more money is coming now, not just the more money that the Fed has already committed to. But the markets want an even bigger commitment. Again, you’ve got a bunch of drug addicts that need more drugs than the drugs that they already have.”

Right now, the markets don’t think they’re going to get it. Peter said he thinks the markets are wrong.

In fact, I think the Fed is going to be much easier, money is going to be much looser, as far as monetary policy, than almost anybody believes. But I do believe the market may be correct in that the additional easing may be delayed. The market wants instant gratification, not delayed gratification. And right now, they’re not getting it, so the markets are having a tantrum.”

Powell has made it clear that he’s waiting for Congress to pass more fiscal stimulus. He’s also made it clear that the US government can run even bigger deficits and the central bank has its back.

Peter made an important point. Gold and silver are going down, but they don’t need the Fed to commit to even more aggressive monetary policy than its already committed to.

What it’s already committed to is more than enough to send gold and silver prices substantially higher than they are right now. It’s a different story for the stock market. They need more stimulus to justify an even bigger stock market bubble than the bubble we have right now.  So, as I said earlier, I think the markets are wrong in thinking that the Fed is not going to deliver more stimulus. They will. But to the extent that they’re right, at least in the short-run, this is much worse news for the stock market than it is for the gold market. Because the stock market, being as overvalued as it is, is far more dependent on that stimulus. … So, if you’re worried that we’re not going to get more stimulus, you shouldn’t be selling gold and silver. You should be selling the NASDAQ, or the S&P.”

Peter said gold and silver will eventually gain strength from the falling stock market because tanking stocks will put more stimulus back in play even if Congress doesn’t come up with its own spending package.

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