Thursday, August 8, 2013

Peter Schiff's Case for Gold

How in the world could gold be so cheap amidst all that is going on in the world? Almost every developed nation is lowering interest rates to weaken its currency and then printing more money, which weakens it even further. Shouldn’t gold be well over $2,000 by now? What is holding it down?

According to Peter Schiff of Euro Pacific Capital, a better question to ask would be: Who is holding it down? Schiff believes the big banks, along with some U.S. Federal Reserve banks, are involved.

Just what is it that has raised Schiff’s long-running suspicions? If he is right that gold has been artificially kept down, might it some day also be manipulated back up? The banks pulling the strings would certainly benefit from a rapid spike back up. And so can you.

Schiff’s Three Signals

Three signals have raised Schiff’s expectations for a sharp gold price spike, as he outlined in a recent CNBC interview:

-Weaker economic recovery: According to the latest U.S. GDP data, the American economy in Q2 grew at an annualized rate of 1.7%. However, Schiff contends that this figure is based on 0.7% inflation, when the government’s own inflation reading came in at 1.1%. If inflation is truly greater than the GDP calculations have been allowing, then GDP cannot be as high as has been reported. Schiff asserts GDP is barely in the positive, perhaps even stagnant at 0% growth.

-More stimulus required: If the economic recovery truly is that weak, Schiff believes there is no way the Federal Reserve will curtail stimulus. In fact, he argues the Fed has no choice but to increase stimulus, which the Fed has been indicating in its press releases that it reserves the right to do if incoming data warrant it.

-Inflation will take its toll: Combining a weak economy (which Schiff expects to recede into another recession) with continued easy-money stimulus can have no other effect than to unleash inflation to run amok. The Federal Reserve has also stated in its releases that it wants to coax a higher inflation rate of at least 2%. Inflation is part of its agenda, and it will not stop stimulus until it arrives.

Once these three symptoms of a diseased economy become full blown, the flight to the safety of gold will resume. Even as Marcus Grubb, managing director of investment at the World Gold Council, indicated in a CNBC interview, “This is a correction in a trend, rather than the end of that trend.”

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