Peter Schiff: Gold’s Rise Isn’t All About Safe Haven…Yet (Video)
During the interview, Peter made some observations about gold that go a bit against the conventional narrative.
As gold finally pushed through the $1,300 resistance level , most analysts viewed it a direct result of geopolitical tensions, especially North Korea’s continuing belligerence. That’s certainly a factor, but Peter made a pretty strong case that gold’s strength isn’t primarily due to safe-haven buying. It’s about monetary policy.
Gold was going up regardless of the political tensions in North Korea, which seemed to last just one day. In fact, gold was up that evening but it actually finished down the following morning. So, gold has been rising, but it’s not because of a safe-haven. You know, if people are really concerned, if there were geopolitical fears out there, the stock markets would be falling. But they’re not. The stock markets are rising. So, people are not buying gold because they need a safe haven, at least not from a geopolitical event. I think they’re buying gold to get out of the US dollar.”
So, why the rush to get out of the dollar? Peter says it’s all about monetary policy.
I think globally the risks are going to become more evident as a result of monetary policy that has existed around the world. Not just the United States, but Europe and Japan and China, there’s been a lot of money creation. Interest rates have been held artificially low. And I think fiat currencies around the world are going to be losing value. So, people want to get out of them, and some people buy stocks and other people are buying gold. And I think more and more people will be buying gold around the world. And if we ever do get a real geopolitical threat, then I think people will flock into gold as they dump equities. But that’s not happening yet.”
Peter and Bianca also discussed the weakening US dollar. August was another down month for the greenback. After a post-election surge, the dollar has tanked, dropping six months in a row. It’s currently on pace for its worst year since 1985.
I think the dollar had a substantial rise based on the expectation that the Fed would be able to normalize interest rates and unwind its massive balance sheet. And the general belief that the Fed’s experiment had actually succeeded, and that the economy was in better shape as a result. And so the dollar kind of rode that rally, and now I think it’s starting to surrender those ill-gotten gains.”
Peter said a falling dollar is positive for developing nations and countries that have dollar-dominated debt. But, it’s a negative for America. A weak dollar means Americans will have less purchasing power. That means our standard of living goes down because things are more expensive for us to buy. Peter pointed out that means ultimately a weakening dollar is going to push up interest rates as the world has to price in the dollar weakness into interest rates.
So far, the Fed has been able to keep interest rates artificially low, but a strong dollar made that much easier for the Fed. Once it’s fighting a weakening dollar, the task is going to become increasingly difficult.”
Bianca asked Peter if he thought the Fed would raise rates again this year. Peter said he wasn’t sure what the central bank would do in the short-run. He is more focused on what’s going to happen in the longer view.
The Fed has shown a propensity to raise rates regardless of the economic data ever since Trump was elected president, so I don’t really know what they’re going to do. Maybe they’ll raise rates again before the end of the year. But regardless, I think they’re very close to the end of the cycle. I mean, anybody who’s smart now is looking beyond the next rate hike to the next cut, because that’s going to be the beginning of the next easing cycle, which I think is going to take rates back to zero, maybe even below zero. It’s going to unleash QE 4, which I think will be bigger than the first rounds one, two and three combined.”
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