Peter Schiff vs. Bart Melek: Is It Time to Buy Gold?

Is now the time to buy gold? Or should we be bearish on the precious metal? Peter Schiff debated TD Securities Global Head of Commodity Markets Strategy Bart Melek on the future of gold prices on CNBC Asia.

Peter opened the debate by pointing out that central banks around the world have created an unprecedented amount of inflation.

In fact, inflation is the way governments have been financing their spending. You have major budget deficits, particularly in the United States, but also in other countries. And governments have been financing that spending through inflation. And now that inflation has reared its head, a lot of people think the central bankers can put the genie back in the bottle by raising interest rates. They can’t do it without creating a financial crisis, without creating a depression. And so, I think the central banks are about to throw in the towel on the inflation fight. I think inflation is going to win. We’re just getting started. Inflation is going to ravage some of these major economies for years and years to come. And I think a lot of people are going to end up getting out of fiat currencies into real money. And I think we’re in the early stages of what’s going to be probably a historic bull market in gold.”

On the other hand, Melek believes the Fed will stay in the inflation fight and that the central bank will successfully push rates to the promised 4.6% level. In fact, he said TD Securities projects 5%. Melek said real interest rates and not inflation are driving the gold market.

One of the CNBC anchors pointed out that the dollar is at a 20-year high and many see it as an inflation hedge instead of gold. Peter pointed out that gold hit an all-time record high in pounds the week before.

So, it all depends on your reference point.”

But why has the dollar been so strong?

The world thinks the Fed is going to win this inflation fight. They’re not going to win.”

Peter reminded us that it wasn’t long ago that the Fed didn’t even think inflation was a problem. In fact, it thought there wasn’t enough inflation. When inflation did rear its head, they spent months calling it “transitory.”

They were wrong again. And now they claim they’re going to bring inflation back down to 2%. They don’t have a chance of doing that. Inflation is more likely to go to 20% than 2%. And when you’re talking about real interest rates — we have negative real interest rates.”

Given that the Fed funds rate is just above 3% and the CPI is just above 8%, real interest rates are -5%. And if you measured CPI accurately, it is closer to 16%, meaning real rates are in the -13% range.

Merek insisted that although gold is doing quite well in other currencies, and there is a strong local demand for the yellow metal in many places, a firm dollar will continue to pressure gold. His primary reason is that “the Federal Reserve looks to be the most aggressive central bank out there.”

I quite agree that they probably will not tame inflation anytime soon, but they’re not giving up this fight — certainly not in 2022, certainly not before most of 2023.”

This debate really comes down to your faith in the Fed. Do you think the central bank has the stomach to keep pushing rates higher as the economy crashes? Or do you think it will stand firm?