Peter Schiff: You Need to Vaccinate Your Portfolio Against Inflation

Earlier in the week, gold sold off on the announcement that initial trials on a coronavirus vaccine looked promising and on Thursday, gold was selling because, as CNBC put it, the yellow metal was “pressured by hopes of a swift recovery from the coronavirus-driven recession.” During a recent podcast, Peter Schiff said this just goes to show that people don’t understand gold or why its price is generally rising and why they need to buy gold now.

It doesn’t matter about a cure or vaccine for COVID-19. That’s immaterial to what is going to happen to gold or to gold stocks. Because gold is not going up because of COVID-19. Gold is going up because of what the government, and more specifically the Federal Reserve, are doing in response to COVID-19, and what they’ve already done. You see, all the increased government spending, all the money printing, is already there. That’s not going away if we get a COVID vaccine.”

You could argue that future monetary policy won’t be as reckless if the coronavirus situation is resolved. But the markets aren’t even really anticipating that. The CNBC article above went on to note that gold’s “losses were capped by prospects of more stimulus and bleak data.”

So, the markets expect more stimulus. They see the bleak data. But they’re still optimistic that we will have a quick recovery? This makes no sense.

Peter said given all of the money printing and government spending we’ve already gotten in the last few months, gold should be at $5,000 at a minimum.

What’s clear to me is that based on what has already been done, the price of gold has to go much higher than its current price and gold stocks have to go a lot higher than they’re trading now. So, they should not be selling off on the possibility of a vaccine when they haven’t even nearly risen as much as they will, or should, based on where they should be even if we have a vaccine, which we don’t.”

While everybody has focused on the health threat of COVID-19, most people have ignored the economic and financial threat posed by the government response.

We are going to pay a heavy price, not for the disease, but for the government’s financial and economic cure.”

There seems to be this assumption that the government and the central bank can just “stimulate” away the economic problems by printing and spending money. But in reality, creating money out of thin air doesn’t solve anything and actually creates more problems.

So we compound the problem of COVID-19 and its effects on the economy by making the negative effects on the economy even worse in the government’s attempt to counteract that perceived damage by printing money and by spending money.”

Last Sunday, Federal Reserve Chairman Jerome Powell appeared on 60 Minutes and assured Americans the Fed has their back. He noted that the Fed and Congress did “a great deal and did it very quickly,” but acknowledged “it may well be that the Fed has to do more. It may be that Congress has to do more.” In fact, Powell said there is “no limit” to what the central bank can do.

Well, there is a lot more we can do. We’re not out of ammunition by a long shot. No, there’s, there’s really no limit to what we can do with these lending programs that we have.”

But in reality, all the Fed can really do is print money. Or as Peter put it, all Powell and company can really do is create inflation. The concept sounds good. If you have money, you can stimulate the economy. But as Peter pointed out, people don’t really want money. That want the things money can buy. The Federal Reserve can’t create any of that stuff.

If the Fed just creates a lot of money but the economy isn’t creating a lot of stuff, then what happens is the price of that stuff goes up. … That’s all the Federal Reserve can do. It can make prices go up.”

So, when Powell says there is “no limit” to what the Fed can do, he’s really saying there is no limit to how much money the Fed can print. In other words, there is no limit to how much the Fed can make prices go up. But as Peter points out, that’s not really true.

I guess that’s only a true statement unless you’re willing to print the dollar until it has no value. Because ultimately there is a limit. The market is going to impose a limit. But of course, if you wait for the market to impose a limit, well then you’ve got a crisis.”

The bottom line is we can’t tell the world there is no limit to the amount of money we will print or borrow and expect the world not to react.

The minute you know there is no limit to how much inflation the Fed is going to create and they couldn’t give a damn about how big the deficits are or how big their balance sheet is, they’re basically telling all the fools who are still holding US dollars, ‘Get the hell out! If you still have US Treasuries, get out. You’re going to get killed. We couldn’t give a damn about you. We don’t care how much money you lose. All we care about is trying to stimulate our economy now.'”

If you wait until the market signals you’re out of goodwill, you are already in a full-blown crisis.

When the dollar finally falls because we’ve crossed that line, it’s going to implode. It’s just going to collapse overnight. Interest rates are going to spike up. You’re going to see a bond market crash.”

Peter said it’s not just a coronavirus vaccine we need.

You still need to vaccinate your portfolio against inflation. That’s already out there. We’re already infected with that disease. It doesn’t matter at this point what happens with COVID-19. … The inflation has already been unleashed. The monetary policy and fiscal policy mistakes that have already been made are enough to send gold to $5,000 or higher. So, people need to be buying gold and gold stocks as fast as they can.”