Peter Schiff: The Gold And Silver Market Is In “The Lull Before the Storm”

June 10, 2021

gold coins

Gold prices have risen by around $200 since the March correction. However, for around two weeks they seem to be stuck near the $1900 mark. Peter Schiff, CEO of Euro Pacific Capital and a renowned financial commentator, is saying that gold bugs have no reasons to worry about this. In fact, in his video he explains how the prices of the yellow shiny metal can reach their all-time highs.

It might sound like a highly strange advice since everyone expects the economy to fully recover and the Fed to taper soon. However, Mr. Schiff says “whatever you feel your allocation is going to be to physical gold and silver, my suggestion is that you fully allocate now. Don’t wait for lower prices because you’re probably going to be waiting indefinitely. I doubt they are going to get much lower. In fact, I expect them to get much higher.”  Please note that Peter Schiff is emphasizing that it is important to buy physical gold and silver and not just paper gold or silver. I published an article explaining why buying gold ETFs is not a good alternative to buying physical gold.

In the current situation of rising inflationary pressures and a reasonably high unemployment rate the Fed seems to be stuck between a rock and a hard place. If it ends the QE (quantitative easing program) and raises the interest rates, the financial markets will crash, the unemployment rate will increase and the general level of economic activity will go down. Meanwhile, if it keeps the interest rates and the bond-buying rate at the current level, the inflation rate will get completely out of control. 

Peter does not agree with the Fed that the inflation we are facing now is “transitory”. He thinks “It is eerily familiar to what the Federal Reserve did back in 2007 when facing the subprime mortgage crisis.” At the time the inflation was running hot, whereas there was a tremendous asset bubble. The general public and financial institutions were investing recklessly in physical housing and mortgage-backed bonds. But the Fed took no measures to effectively cool the markets, lower the inflation rate, impose restrictions and prevent the crisis.

According to Schiff, “The Fed couldn’t have been more wrong if it did so intentionally. And in fact, maybe the Fed did intentionally mislead the public. They were so worried about the mortgage problem that they lied and pretended it was contained. The same thing is probably happening now with inflation. The coming inflation crisis is going to be far worse than the financial crisis. And now the Fed is again telling everybody that there’s nothing to worry about, that all these prices that are going up — this is all transitory. The prices are going to come back down and so they’ve got nothing to worry about. Well, inflation is as transitory today as subprime was contained.”

In Schiff’s view, the inflationary pressures are here to stay and will most probably get out of control since the Fed “has no ability to fight inflation because it has created such a massive credit bubble. There is now so much debt in the system thanks to the Fed that if the Fed were to raise interest rates to fight inflation, they would collapse the entire house of cards economy that they’ve been erecting over the years, and so they’re not going to do that.”

But let me explain this in a bit more detail. Inflation was one of the biggest problems to emerge as a result of the massive bond-buying program and the government’s spending. The US government has been massively supplying the US population with unemployment benefits and other forms of financial help for more than a year already. Since the US has faced decades of budget deficits and year 2020 was no exception, a lion’s share of this money was printed by the Fed. These unemployment benefits have been spent on various goods and services. So, we ended up in a situation when too much money is chasing too few goods. As Mr. Schiff notes, “This recovery that everybody is talking about is a myth. We haven’t recovered from anything. All we’re doing is spending the money the Fed prints. But because the Fed has printed so much money for us to spend, the price of everything we want to buy is going through the roof.”

But, unfortunately, the problems do not end here.

Money-printing is done via the bond-buying program. The Fed has been buying back Treasuries and mortgage-backed bonds for a while. These massive buybacks obviously led to huge price gains in the prices of these securities, thus creating an asset bubble. But this is just the tip of the iceberg.

A significant share of the cash the general public and financial institutions received as a result of the bond-buying program and fiscal spending was used to buy various investment assets. Last year many financial institutions and private speculators started actively buying stocks of loss-making, newly established and overvalued companies. They got particularly fascinated with electric vehicle companies, medical firms and internet stocks. But particularly remarkable is the general public’s interest in so-called meme stocks and meme cryptocurrencies. One of the strangest examples is the “dogecoin”. Although it was intended as a joke, it became one of the most actively traded cryptocurrencies.

Individuals that invested $10,000 in it just several months ago would have ended up with more than    $1 million today.

Source: Y-Charts

Also interesting are the recent dramatic price gains in (AMC) and (GME) stocks. These price rises were due to Redditors’ short squeezes.

All these things happening are, in my opinion, signs of the financial markets’ overvaluation. So, in this respect the current situation resembles 2007, the 1990s, the roaring 1920s and other classical stock market bubbles. 

The prices of goods and investment assets have skyrocketed, whereas the price of gold is quite low and stable. But in Peter’s view, this is temporary.

 “Gold is the money by which everything else is overpriced. The reason that gold is not in a bubble is because everything else is in a bubble in terms of gold. Gold is the stable store of value. Gold is real money. It’s safe haven. And during bubbles and manias, everybody wants to buy the risk assets. … I expect all of those bubbles to pop — the air to come out. But the way I expect them to deflate is not with their dollar price going down, but with the gold price going up. That’s how all these bubbles are going to pop. The price of everything is going to crash when expressed in gold and silver. And so what you want to do in advance of the deflation of the everything bubble is to buy the asset that everything is going to be deflated against, and that is real money. That is gold and silver.”

That is why Peter Schiff recommends buying physical gold and silver as soon as possible before it is too late.


Anna SokolidouAnna Sokolidou, a graduate of the University of Edinburgh, is a research analyst and a freelance writer with a strong interest in commodities. She has several years of investing experience and working as an in-house analyst. She is particularly enthusiastic about researching precious metals and conducting macroeconomic analysis. Her work has appeared on a number of investing websites but she now mostly publishes her work on Seeking Alpha.

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