Contact us
CALL US NOW 1-888-GOLD-160

Peter Schiff: Traders Starting to Realize High Inflation is Bullish for Gold

  by    0   0

For months, the markets have responded to inflationary pressures by piling into dollars and selling gold. They’ve taken this counterintuitive approach because they believe the Fed will tighten monetary policy to fight inflation sooner rather than later. But we’re starting to see a shift in sentiment. As Peter Schiff explains in a recent podcast, traders seem to be realizing that inflation might be here to stay, and that is bullish for gold and bearish for the dollar.

Last month, we started to see a rotation in the stock market with investors moving out of the “hyped up, overvalued” momentum stocks into more traditional value-oriented, dividend-paying stocks that are considered better inflationary hedges. The NASDAQ was the only index down on the month. The Dow up about 2% in May while the NASDAQ saw its biggest decline since last October.

The reason that you saw weakness in the NASDAQ and strength in the Dow is because the Dow Jones is where you can find more value-oriented stocks. Of course, value is a relative term. I mean, they may not be value stocks in an absolute sense that they’re real bargains. But they’re value relative to these hyped-up momentum stocks.”

You can also see the rotation when you compare foreign and domestic stocks. Foreign stocks substantially outperformed compared to the S&P and the Dow Jones.

The reason for that is because foreign markets have a lot more value-oriented stocks than the US. America leads the world in the over-priced momentum stocks. And so, when those stocks were in vogue and everybody was buying them the US market was the best game in town. But now that we’re rotating away from those names and people want out of momentum and into the value, they’re also getting out of the US market into foreign markets, which also means they’re getting out of dollars.”

The dollar index dropped for the second consecutive month in May. More importantly, this is the lowest monthly close for the US dollar index since 2014.

Meanwhile, gold and silver had a big month in May. Both metals were up about 7.5%. Gold had its best monthly gain since last July and closed the month above $1,900.

Peter said the most significant development in the gold market was its reaction to the hotter than expected increase in the personal consumption index. This key inflation indicator was up 3.6% in April, much higher than expected. The year-over-year core PCI was up 3.1%, the biggest rise in 29 years.

As soon as these numbers came out, traders went to their typical knee-jerk response, buying dollars and selling gold. Gold dropped some $15 initially.

Of course, this is counterintuitive. High inflation numbers mean the dollar is losing value. It would make sense to sell dollars under these conditions. And it would also make sense to hedge that inflation by buying gold. But the markets are still looking to the Fed. They expect the central bank to try to rein in inflation by tightening monetary policy and raising interest rates.

But eventually, what traders are going to figure out, is that high inflation is not good for the dollar and bad for gold because the Fed is going to fight inflation by tightening policy — because the Fed is not going to fight inflation. It’s not going to tighten policy. And so, inflation is going to continue to erode away the value of those dollars. So, why would you buy them? You won’t. You will sell them and you will buy gold.”

Peter said there are some indications that traders are starting to wake up to this reality. After the initial selloff Friday, traders spent the rest of the day selling dollars and buying gold. The dollar surrendered almost all its morning post-inflation news gains and gold recouped all of its losses and ended up closing up on the day.

I think this is very significant because it shows to me that the traders are waking up to this reality that inflation is bearish for the dollar and bullish for gold, and they’re starting to realize that it doesn’t matter how much the Fed barks about its willingness or intentions or ability to fight inflation should it rear its head, the market is starting to realize that inflation isn’t going to be fought, that inflation is going to win by default because the Fed isn’t even going to try to fight it — because it can’t.”

If this is the case, we should see much bigger gains in the price of gold and silver.

Download SchiffGold's Gold vs GLD EFT's Guide Today

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: Oblivious Financial Media Downplays Inflation

Average Americans are worried about inflation, but the mainstream financial media doesn’t think they should be. Even though inflation is a hot topic, the conversation seems to primarily center around the notion that inflation is overblown. In his podcast, Peter explains why this mainstream media spin downplaying inflation is dead wrong.


Peter Schiff: It’s a Double Whammy

Gold and silver whipsawed to end last week. Gold fell over $30 on Thursday when weekly jobless claims and the ADP private payroll numbers came in better than expected. But the yellow metal gained back much of the loss on Friday after a less than overwhelming Labor Department May jobs report. In his podcast, Peter […]


Peter Schiff: Americans Are Worried About Inflation

If you’ve been to the grocery store, or the gas station, or the building supply store, you know we have an inflation problem. Last month’s hotter than expected CPI confirmed what we already intuitively know. But the folks over at the Federal Reserve continue to tell us there’s nothing to worry about. They insist inflation […]


Peter Schiff: Gold Cracks $1,900 as Inflation Tax Destroys Purchasing Power

Gold pushed above $1,900 an ounce near the end of the trading day Tuesday (May 25) and closed just below that level. Silver also had a strong day, up about 22 cents, closing just below $28 an ounce. Meanwhile, the dollar index headed in the opposite direction, closing an 89.66. That’s the lowest level for […]


Peter Schiff: Investors Are Starting to Worry the Fed Won’t Fight Inflation

We’ve been talking about the inflation threat for months. But the markets have been acting as if the real threat is the Federal Reserve trying to fight inflation by tightening monetary policy. With every bit of inflation news, gold has sold off. But after last week’s hotter than expected CPI data, it looks like investors […]


Comments are closed.

Call Now