Peter Schiff: QE Addiction is Fueling the Fire that Sends Gold Higher

Collin Kettell August 7, 2016
Category: Palisade Videos

There are several reasons the world economy is unsustainable within the current systems. Peter Schiff believes the biggest factor is countries like the US which have huge deficits. They have low production rates requiring mass imports of goods in exchange for pieces of paper that are losing their value. This forms imbalances which destabilize the global economy. There are also enormous amounts of bonds and unfunded liabilities which creates vulnerability to a backup in interest rates. If rates go up, they can’t afford to pay.

Another key factor is the US dollar being rooted as the reserve currency. Emerging markets are sitting on stockpiles of US Treasuries, bought to prevent the dollar from crashing. Many developing countries peg their currencies, or want to limit the value of their own currency relative to the dollar for fear of jeopardizing their export economy. This makes distortions in economies resulting in all sorts of malinvestments from the trade imbalances.

He predicts that the Fed will cut interest rates and go through another period of quantitative easing that’s larger in scope than the previous one. QE is a detrimental addiction of the monetary system. To turn things around the Fed would need to quit cold turkey resulting in stock and bond markets crashing, and banks failing- which the Fed doesn’t have the stomach for. Instead of a crash, the Fed will do what they can to prevent it with more cheap money.

Peter owns many individual gold stocks and manages a Euro Pacific gold fund (EPGFX) which is up 130% so far this year. He recommends diversifying outside of gold, and not keeping money in the US or other countries that are having significant problems. It’s unlikely, but if the Fed becomes aggressive in their tightening, it could send gold prices down- but stocks, bonds, and real estate would be brought down even faster. He proposes that if we go back to QE and 0% interest- the price of gold might go ballistic.

Another key factor is the US dollar being rooted as the reserve currency. Emerging markets are sitting on stockpiles of US Treasuries, bought to prevent the dollar from crashing. Many developing countries peg their currencies, or want to limit the value of their own currency relative to the dollar for fear of jeopardizing their export economy. This creates distortions in economies resulting in all sorts of malinvestments from the trade imbalances.

He predicts that the Fed will cut interest rates and go through another period of quantitative easing that’s larger in scope than the previous one. QE is a detrimental addiction of the monetary system. To turn things around the Fed would need to quit cold turkey resulting in stock and bond markets crashing, and banks failing- which the Fed doesn’t have the stomach for. Instead of a crash, the Fed will do what they can to prevent it with more cheap money.

Peter owns many individual gold stocks and manages a Euro Pacific gold fund (EPGFX) which is up 130% so far this year. He recommends diversifying outside of gold, and not keeping money in the US or other countries that are having significant problems. It’s unlikely, but if the Fed becomes aggressive in their tightening, it could send gold prices down- but stocks, bonds, and real estate would be brought down even faster. He proposes that if we go back to QE and 0% interest- the price of gold might go ballistic.

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