Schiff is known for his pessimistic market forecasts. He accurately predicted the 2008 financial crisis. Schiff believes that sooner or later, the Fed’s monetary policy will completely collapse the US dollar and lose its status as a reserve currency.
On Wednesday, gold continued its recent strong gains, breaking through the $1,950 per ounce mark and hitting a new high again, with $2,000 already in sight. So, can this rally continue to continue? Well-known financial commentator and investor (Peter Schiff) Schiff’s answer is yes. Schiff is known for his pessimistic market forecasts. He accurately predicted the 2008 financial crisis.
What really caused the recent violent rise in gold prices was not the prolonged epidemic and the major damage it caused, but the response of the US government and central bank to the epidemic — borrowing, spending and printing money. From this perspective, the core of the problem is not the gold itself, but the dollar, which is the unit of measurement for the price of gold.
Schiff believes that sooner or later, the Fed’s monetary policy will completely collapse the dollar and lose its status as a reserve currency. Schiff explained that of course the Fed would not be willing to see this happening, so they have been resorting to various perfunctory and procrastination methods, but this time, they can no longer drag on.
In fact, this market observer, who gained fame for predicting the global financial crisis of 2008, has been firmly bearish on the dollar for quite some years. He admitted that although he saw a major trend, he had made mistakes in his judgment of timing. He thought that the dollar would collapse much faster than it is now, but this time, he believed that the doomsday trial was really coming.
“The trouble now is much bigger than it was ten years ago. Therefore, I think we no longer have the ability to drag on. It is true that I have underestimated this ability in the past, but this time, it has really failed. It may have been done. I also don’t see any way the US government and the Federal Reserve can stop the price of gold from rising.”
Looking back at history, the first major rise in the price of gold occurred in the 1970s, rising from approximately US$35 per ounce to more than US$800. The then U.S. Federal Reserve Chairman Paul Volker showed great fighting spirit, and he recklessly raised interest rates vigorously, stifling the trend of rising gold prices and opening the prelude to the two decades of gold bear market. “The Fed has reached their target.” Schiff commented, “They did it very correctly.”
The second wave of major gains began at the beginning of this century, that is, after the Internet bubble burst, until 2011, the price of gold reached more than $1,900, setting a record that has now been broken. So, who stopped the rally at the time and brought the price of gold back to below $1,900?
“The Fed still has the ability to convince people. At that time, the whole world was worried that quantitative easing would eventually turn into a disaster and that the zero interest rate policy would eventually fail. However, the Fed successfully convinced everyone that their plan was effective. Therefore, it will be temporary and will end when its purpose is achieved. At that time, the Fed will begin to normalize interest rates and reduce the size of its balance sheet to bring it back to the level before the 2008 crisis. What, the market actually believed it.”
This also means that this time the Fed did nothing at all-they did not really raise interest rates, but instead ended the gold rally by convincing the world that they would raise interest rates.
Of course, as everyone knows, the Fed did not really return to normalization because they actually no longer have that ability. The U.S. Central Bank did try to raise interest rates gradually, but in 2018, the stock market immediately fell into chaos. As a result, the process of raising interest rates staged a “Powell suspension”, followed by three consecutive rate cuts in 2019, and launched a round of the Fed’s life and death reluctance to recognize quantitative easing.
Another key reason for the continued strength of the dollar is that other major economies around the world are also carrying out interest rate cuts and quantitative easing operations. Against this background, the U.S. monetary policy does not seem so bad. In Schiff’s words: “We became the cleanest thing in the dirty laundry basket.”
Time has come all the way to the present. The price of gold has entered a new bull market since 2015 when it was slightly higher than US$1,000. Schiff asked a sharp question: What kind of rabbit can the Fed want to end the gold rally again from its top hat?
“I think their top hat is empty and there is no rabbit in it.”
Schiff pointed out that it is impossible for the Federal Reserve to raise interest rates as it did in the 1980s, because the US economy can no longer withstand such a blow. Compared with the previous year, the current debt level is much higher, but the savings level is much lower. Similarly, the Fed can no longer expect to rely solely on lip service as it did in 2008, because no one will believe them anymore.
“So, what options do they have left? The answer is, nothing is left. They don’t have any means. Is there anything I missed? Maybe there will be. Therefore, I didn’t put all of them. A bet. However, we didn’t have to bet all the bets, because there are many opportunities in other fields, such as overseas markets and emerging markets, so we only need to allocate a certain percentage of gold and gold corporate stocks.”