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Peter Schiff: “Vicious” Gold Rally Coming

It hasn't been an easy week for gold. It dropped over 6 percent on Thursday, and hit a nearly three-year low on Friday before recovering very slightly in early trading.

Traders blamed Ben Bernanke for the metal's collapse. On Wednesday, the Federal Reserve chairman announced that he was looking to "moderate" the Federal Reserve's bond-buying program "later this year," and to "continue the reduce the pace of purchases in measured steps though the first half of next year, ending purchases around midyear."

This signal that the Fed's quantitative easing program may be coming to a close spooked the stock market, but was even tougher on gold, which investors often hold to hedge against inflation. The expectation had been that quantitative easing would stoke inflation and thus be bullish for gold, but if quantitative easing is ending, a major reason to own gold has been lost.

(Read More: Gold Selloff Isn't Over: Pro Trader)

But Peter Schiff says investors have it all wrong.

"People are jumping to the wrong conclusion. They think the Fed is going to tighten—they're not. In fact, the next move from the Fed is to expand QE," the CEO of Euro Pacific Capital said Thursday on CNBC's "Futures Now."

Schiff believes that the U.S. economy cannot sustain itself without the quantitative easing—so the Fed will jump back in.

"The U.S. economy is going back into recession," he said. "The phony recovery that the Fed created is evaporating before its eyes."

(Read More: Why I Became a Gold Bear: Pro Trader)

Robert George Young | Photographer's Choice | Getty Images

Schiff believes the very reason the Fed will have to double down on easing is that the program doesn't actually help the economy. "The Fed is going to have to admit that it isn't working, and they're going to up the size of QE," Schiff predicted.

So what does this all mean for gold?

"The gold traders are preparing for something that's not going to happen," Schiff said, "and they're going to be caught by surprise. You're going to see a vicious rally in gold as people look to rebuy the gold that they sold based on the false premise that the economy was improving and the Fed was going to tighten."

Now that the Fed is looking to taper down easing, Schiff sounds to be locked in a theoretical battle with the Fed's latest ambitions. When asked if he's ready to surrender on his bullish gold thesis, Schiff insisted: "The Fed is going to have to waive the white flag, not me."

That said, gold's recent action may already point toward a victor in the battle.

— By CNBC's Alex Rosenberg. Follow him on Twitter: @C NBCAlex.

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