Peter Schiff: Why Shouldn’t You Give Up On Gold And Silver?

Figure 1. (above) Mouse sniffing object for curiosity and recall later.

You bought gold and silver betting on inflation. You bet right. But you haven’t seen a big move up in metals – at least not yet.

All the people who said there was no inflation to worry about – they were wrong. Yet it’s very frustrating that even though we were right, we’re not getting rewarded for being right in the price of our gold and silver that should be much higher.”

But there are reasons why gold and silver haven’t rallied yet, as Peter lays out in the video. And he is certain they will rally, once the markets catch on to what’s really going on.

First, Peter reminds us that inflation isn’t new. It has been with us for more than a decade. When the Federal Reserve responded to the 2008 financial crisis with quantitative easing — that was inflation. But due to the way those early rounds of QE entered the economy, it primarily showed up in asset prices, not consumer prices.

A lot of asset prices went up, and when that happened, a lot of Americans who owned those assets felt richer. Therefore, they weren’t upset that the cost of living was also going up because their wealth was going up a lot faster, at least on paper.”

And of course, all along the government was understating the amount the cost of living was going up through a rigged CPI formula.

The policy response to COVID-19 kicked inflation into high gear. At the onset of the lockdowns, the Fed launched QE infinity.

While we cranked up the printing presses like never before, we basically ordered people to stop working. We told them to go home, and not produce goods and services, but just cash government checks. We wanted to replace the lost incomes with a printing press. So, people weren’t earning money anymore, but the Federal Reserve was printing money so people could buy things they were no longer producing.”

Peter called this the perfect storm of inflation.

But the question remains — why hasn’t the price of gold and silver responded to all of this inflation?

At times, it feels like the price of everything is going is going up – is going way up – except gold and silver, which doesn’t make sense, Gold and silver should be particularly sensitive not only to today’s inflation, but tomorrow’s inflation.”

By its very nature, the price of gold can discount the price of all the future inflation.

And that leads us to the first problem.

Even though we have a lot of inflation today, investors still think we won’t have inflation tomorrow.”

So, why aren’t investors worried about future inflation?

Because the Federal Reserve is promising to solve the problem. The conventional wisdom is that you don’t need to buy gold and silver to hedge against future inflation because there won’t be any. The Fed is on the job. Powell & Company will make it go away. They have the tools to get inflation back to 2%.

Rather than fearing inflation, they’re fearing the fight against inflation. Because how is the Fed going to fight inflation? It’s going to jack up interest rates. It’s going to have a tight monetary policy. In fact, it’s even going to start shrinking the balance sheet. It’s going to start taking money out of circulation — quantitative tightening. It’s going to reverse all of that inflation. It’s going to suck up that liquidity. And that is what is scaring investors out of buying gold and silver. They still have confidence in the Federal Reserve.”

Peter said that confidence is going to be lost.

He goes on to remind us of all the things the Fed has gotten wrong in the past – from “there is no problem in the housing market” in 2006 and 2007, to “inflation is transitory.” Now, Jerome Powell is saying it can slay inflation. And he’s confident he can do it because the economy is strong. The entire Fed policy is predicated on a strong economy.

Peter said, “That is completely wrong.” In fact, we may well already be in a recession.

I think that when the Fed ultimately has to admit – again – that it was wrong on the US economy and it overestimated the strength of the economy just like it underestimated inflation the Fed is going to lose its credibility.”

And when the Fed turns its attention to a tanking economy, inflation is going to get worse. Government deficits will explode again. The central bank will have to print even more money to monetize the debt. The balance sheet will explode.

And the cost of living is going to keep going up.

All of that inflation that started out in financial assets has now permanently migrated into consumer goods. … So, this is not a temporary situation. This is permanent. Inflation is going to get much, much worse. But the economy is going to get weaker. It’s stagflation.”

When the markets come to terms with this reality, everybody will come rushing into gold and silver.

In the meantime, it’s important not to give up on the gold and silver you already own. Furthermore, this is an opportunity to buy gold and buy silver while most investors remain clueless about what’s actually going on.

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