Peter Schiff, chief executive officer of Euro Pacific Capital, has been known to make forecasts outside the mainstream, and his long-running belief that gold has the potential to hit $5,000 an ounce is no exception. Prices, after all, are struggling to get a grip on $1,300.
We caught up with Schiff to ask him how gold, a big disappointment for commodities investors last year, gets back its groove. Last year, gold futures and heavyweight ETF SPDR Gold Trust lost 28%, breaking at least eight years of annual gains.
First off, Schiff’s gold forecast isn’t brand new. The author of “The Real Crash — America’s Coming Bankruptcy” has talked about the possibility of gold hitting $5,000 or higher since at least 2011, when prices for the metal topped $1,900 in intraday trading.
Schiff reiterated his call on the potential for $5,000 gold and beyond during a heated debate with Paul Krake of View from the Peak onCNBC’s “Futures Now” episodeposted on April 15.
I certainly do not think that America is going bankrupt, as Peter Schiff says above. In fact, the US economy’s growth and productivity are improving after a severe credit crisis recession. However, I agree that gold (historic monthly, weekly & daily) is going to $5,000, and I hope to live long enough to see it.
Yes, there are disinflationary and deflationary problems but we live in a fiat currency world. Even so called ‘prudent’ developed central banks make no secret of the fact that they want at least 2% inflation per annum. Developing countries generally have considerably higher inflation.
The Bank of Japan is trumpeting the fact that it has finally revived inflation after an unusually long period of deflation in a paper currency world. The main reason we have paper currencies is because they lower the real cost of long-term debt. Most governments certainly have plenty of debt.
At 2% inflation per annum, it takes 36 years for prices to double. At 5% inflation per annum it takes 14.4 years for them to double. There will always be pockets of deflation, the most positive of which are due to productivity increases, such as we have seen with the cost of computers over the years. However, consider all the things that you pay for on a least a monthly basis. Ask yourself, how much have their costs increased on average over the last decade, not to mention since when you were a child? Sobering, isn’t it?
Fortunately, we can invest in many assets including equities, which are at least a partial hedge against inflation and can also pay us dividends provided they remain profitable. However, gold has been the most reliable long-term hedge against inflation throughout human history. I do not think that will change.Back to top