Peter Schiff: Coming Japanese Crisis Will Spike Gold
Peter Schiff of Euro Pacific Capital has been bullish on gold for a long time, but now he has a new reason to buy: Japan.
That nation's sweeping plan to boost its economy has seen the Bank of Japan pledge to buy 7.5 trillion worth of government bonds a month (about 70 percent of new Japanese issuance), and Japan is embarking on stimulus in the form of government spending.
Japan's first-quarter gross domestic product data showed that its economy grew by 0.9 percent on a quarterly basis (3.5 percent annualized), which has led to a degree of optimism that Prime Minister Shinzo Abe's policies are working.
But Schiff was steadfast in his belief that Abe's plans will come to grief and that the prime minister has an unsustainable situation on his hands in aiming for a 2 percent inflation rate.
(Read More: Japan's Economy Boosted by Consumption, Exports)
In an April blog post, Schiff wrote that "the idea that informs Abe's plan, that rising prices entice consumers to buy before prices go up, is clearly suspect as economic law dictates that demand increases when prices fall."
Thus, he said, the plan is destined to fail—and quickly.
"Japan will unleash an inflation tsunami if it tries to keep its bond bubble from popping with more qualitative easing," Schiff said. "If it shows restraint, the bubble will burst, eventually taking stocks down with it."
In other words, Japan is doomed to inject increasingly more money into the system, spurring inflation, which will in turn dramatically boost the price of gold, according to Schiff.
"Gold is a buy, and the Federal Reserve and Bank of Japan policies will drive the metal to new highs," he said. "So will the easy-money policies of other central banks that are joining the currency war."
Given that gold's record price is more than $1,900 and the metal now sits below $1,400, Schiff has good reason to pick up a few ounces.