Friday, July 26, 2013

Peter Schiff on Gold: 'You Have to Love a Market Everyone Hates'

Euro Pacific Capital CEO Peter Schiff is calling a bottom of sorts in gold — one of the most ardent defenders of the precious metal has launched his first gold mutual fund, which invests primarily in gold mining companies rather than in the metal itself.

Given the recent 20 percent drop in gold and 40 percent plummet in gold-mining stocks from their highs, Investment News said the outspoken Schiff is "either crazy like a fox — or just plain crazy."

The new EuroPac Gold Fund to some extent puts Schiff's reputation where his mouth is.

"The [gold mining] stocks have just been crushed," he told Investment News. "I've never seen sentiment this bad, and you have to love a market everyone hates."

Ever the gold bull, Schiff predicted the Federal Reserve's ultra-loose monetary policy would send gold to $5,000 per ounce in the next few years by stoking inflation.

"Inflation is not low," he maintained. "A lot of people on Wall Street think inflation is low because they believe the government and not their own eyes."

Mining stocks are often viewed as a leveraged play on gold, which means big swings in gold prices can be amplified at the mine level.

"The No. 1 reason gold miners have done terribly is they've done a terrible job of managing their capital. They were very profitable during the gold bull run, but they've misused all that money," Sam Lee, an analyst at Morningstar, told Investment News.

However, some assess the problem differently for gold mining stocks.

Joe Foster, a portfolio manager for Van Eck Global, told Index Universe the average cost of production across the industry is about $1,050 per ounce, but the World Gold Council put that figure closer to $1,400 per ounce.

"Unlike most industries, there's very little a mine can do when the price of its product falls below the price of its manufacturing. The realities of the business are simply crushing," Index Universe said.

Hedge fund manager Jim Rogers believes gold's price could be headed for a bottom at $1,090 per ounce, Financial Advisor reported. In mid-day trading on Thursday, gold was priced at $1,329 per ounce.

Speaking at a conference in Denver, Rogers said he suspected a gold correction could be an anomaly and that he is still long-term bullish on the precious metal.

Not for the first time, Rogers blamed Fed policies for U.S. economic woes. "The first two central banks in the U.S. went bust and the Greenspan-Bernanke Fed will, too," he predicted.


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