The dollar's gain has been gold's pain the last week. The US greenback moved up 2% last week against the gold's fall of 3%. And, while gold is down nearly 22% this year, some are saying this week's drop is yet another buying opportunity.
One person who is never tired of saying gold is still a buy is Peter Schiff, CEO of Euro Pacific Capital. In a recent note to investors, Schiff argues that the recent budget deal and the Federal Reserve Bank's easy money policy will lead to a currency crisis. However, the markets haven't yet caught on to this, says Schiff, and he sees a buying opportunity in gold. In the interview above, he discuss his views on gold with Talking Numbers.
Brian Sullivan, Talking Numbers: "I would imagine you've been buying any dip in gold."
Peter Schiff, Euro Pacific Capital: "I've been buying gold for a long time and I've been advising my clients – or anybody that listens to me – to buy on the dips and to see the rallies in the dollar. We're having a rally in the dollar over the last few days. The euro hit a two year high against the dollar and now everybody's coming out to trash the euro. They're claiming there's not enough inflation in Germany, that Germany is exporting too much, they need to cut interest rates, they need to create inflation… All of this is designed to talk the euro down to try to artificially prop the dollar up. But, eventually, the dollar is going to roll over and go back down and that's very bullish for gold."
Sullivan: "Why are you so confident that eventually the dollar will roll back over?"
Schiff: "The fundamentals are so awful in the United States. That's why the dollar is so weak. We're trying to convince everybody that weakness is strength, that having trade surpluses is a bad thing, that having a lot of manufacturing and a lot of exports is bad, that saving your money is bad, that the only thing is good is borrowing a bunch of money and spending it the way we do. But, that's not good. That is awful. That's what destroys a currency. And, the only reason the dollar hasn't collapsed is that we've convinced all the other central banks around the world to artificially support it. But, they're not going to do that forever and I think that their ability to do that as well as their willingness to do that is coming to an end."
Sullivan: "On the other side of that – you and I have spoken for years and you've liked gold for years and you've been mostly right – gold from mid-$300s 15 years ago to $1800 an ounce. You made a lot of money for you and your clients I'm sure. The last couple of years have been certainly a lot more difficult. Is there a point where you even say, just due other forces that have nothing to do with your thesis – central banks selling whatever it may be – that you will say, 'You know what? Gold is just not where it's at"?
Schiff: "I'm not trying to give people short-term trading advice. It's not central banks that are selling, it's a lot of speculators that are selling gold. I think the speculators are the ones who timed it wrong. They loaded up on gold at $1700, $1800 an ounce. They're the ones that are selling it a loss at $1300. So, they're the ones that have made a mistake. They're the ones that have mistimed the market. I also think that you've got a lot of shorts in the market now that are going to be very disappointed to have to cover those short positions at much, much higher prices than it is today.
"I'm just looking at the long-term fundamentals and I also know that at some point, the bottom is going to drop out of the dollar and gold's going to skyrocket. If you don't own it, it's going to be too late. Even if you've made profits trading it, if those profits are in paper dollars when gold takes off, they're not going to be worth anything."
Sullivan: "And, unfortunately, we're to blame for part of this. [In] the 24/7 news cycle, everybody's definition of long-term – for some people, that's ten minutes. When you say long-term, I assume you're meaning years that gold will be a good investment, decades."
Schiff: "I think you have to hold [gold] just like insurance. Your insurance policy is a rotten investment until you need it. [If] you have fire insurance, you're wasting your money but then when your house burns down, you're glad that you have it. Gold is also insurance for a collapse in the dollar, the dollar burning down. And, when the dollar is burned to a cinder and it's not worth much, if you don't have any gold, then what do you have? You've lost your wealth."
"So, people need to have gold because you can't trust central banks, you can't trust Ben Bernanke, you certainly can't trust Jane Yellen. But, gold has been a trustworthy store of value for centuries, for eons. But [with] paper money you've got economists now… Look at that article in the New York Times arguing for 6% inflation. That's money losing 6% of its value every year. Think about what that does to your retirement savings. If you're putting money aside for 20 or 30 years from now, and it's going to lose 6% of its value every year, there's practically nothing left by the time you retire. You've got to have assets that the governments can't destroy and that's gold."
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