Schiff on Gold

I received a newsletter from Peter Schiff in my email (unfortunately the web page is keyed to my email address, which shows up at the bottom, so until I can figure out how to fix this I will just show excerpts below).

One problem with the advice of “Gold Bugs” is that they are long gold and thus profit from encouraging others to buy it. This isn’t so bad in the case of most kinds of investment advice, where the advisers don’t have a long-term stake in the type of investment they recommend even though they currently hold it; but with gold, the advice often comes from people whose primary business is tied to gold or related commodities. Schiff has such a business.

I still trust his advice in this case, but would be interested in comments on this issue and on the other things Schiff has to say in his newsletter.


Dear Gold Investor,

Welcome to the fourth issue of my monthly Gold Report.

The autumn rally continues apace, with gold setting so many nominal records that it doesn’t even make headlines anymore. Gold moved from $1310 to $1380 this month before consolidating around $1335. Silver moved from $21.95 to $24.49, an 11.6% gain, and then held above $23. I’m surprised there hasn’t been at least one significant correction in this run-up, but as we all discuss in this issue, Fed policy seems designed to drive a prolonged gold rally.


Peter Schiff
Euro Pacific Precious Metals, LLC

This report is designed to give you an edge when buying or selling, and, of course, we hope to have your business. To speak with a Precious Metals Specialist, call 1-888-GOLD-160.

by Peter Schiff

As the world awaits another $500 billion flood from Bernanke’s printing press, central bank governors from Brasília to Tokyo are preparing to respond in kind. This is the monetary equivalent of a nuclear war, except instead of radiation, bombs of inflation threaten to make the world economy uninhabitable for saving and productive enterprise.

…Last month, the Fed came out with a statement that, for the first time ever, said inflation is rising at a rate “below its mandate.” That is, they acknowledged that the deflation threat had passed, that prices were stable – but they still intended to send prices higher.

Since the Bretton Woods Agreement was signed in the wake of World War II, the global monetary system has been based on the US dollar. This means that when the Fed decides to create trillions of dollars of inflation, other countries can’t simply say, “let them dig their own grave.” Instead, because their international transactions are denominated in dollars, they feel a pressure to maintain relatively stable exchange rates between their currencies and the dollar.

Most countries do this informally and have their own (bad) reasons for maintaining a certain level of inflation. China, however, is more literal in its devotion to the dollar system, perhaps due to its psychology as a new arrival on the world stage. So, in recent history, the People’s Bank of China has largely maintained a “peg,” by which it currently offers to pay 6.8 RMB for every dollar deposited, no matter how many extra dollars the Fed prints. To put it another way, China, and to a certain extent the entire world, is on a Dollar Standard — like the Gold Standard, but based on another fiat currency instead of a precious metal.

What this also means is that China does not intentionally devalue its currency against the dollar, but only to keep pace with the dollar…. Most emerging markets are the same way….

In short, the currency war is really just the rest of the world trying to shield itself from a barrage of nuclear dollars.

The end result is that the entire civilized world is locked in a race to inflate, and no fiat currency is truly safe. …

As the Fed seeks to blow up the global monetary system, I take comfort in the fact that gold cannot fight a currency war because it is not a currency. Gold is money. Currencies used to be backed by money until the global fiat system was introduced under President Nixon. Fiat currency can be printed at will until the economy collapses, as has happened many times in history. Money is impossible to devalue at the whim of politicians because it is naturally scarce. Even in the ruins of Europe after the Second World War, when there was no central authority and chaos reigned, an ounce of gold was worth what it always had been.

If we are witnessing a fight to the death among fiat currencies, then gold is surely the Red Cross – a peaceful arbiter and source of mercy for our accumulated savings. While I do believe that life will go on after this war, as with all others, the thought of the world’s savers all hiding their assets safely in gold brings to mind the old question: What if they gave a war and nobody came?

If you would like more information about Euro Pacific Precious Metals, click here or go to our website, For the fastest service, call 1-888-GOLD-160.

by Jeff Clark of Casey Research

QE2 is the latest buzzword in the investment community, referring to the second “quantitative easing” program the Fed is likely to dispense. While Peter examined the impact of the Fed’s policies on other countries, I want to compare it exclusively to gold. Warning: you may be offended at what you’re about to see.


The next question is: how much “easing” could the Fed do? Bill Gross, at investment management firm PIMCO, believes the Federal Reserve will resume quantitative easing at the rate of $100 billion per month. If the Fed actually bought Treasury bonds at that pace, it would be buying nearly all the new debt being issued by the US Treasury. The Federal Reserve would be financing the government’s deficit.

Let’s assume Bill Gross is correct in his projection. How does $100 billion of money printing compare to the amount of gold coming to market each month?

Using 2009 data, the monthly total of new gold supply coming to market averages 9.71 million ounces, or about $13.1 billion (at $1,350/oz gold). That means the Federal Reserve is about to print 663% more in dollars every month than the value of what the entire world can supply in gold from all sources.

Monthly mine production is about 6.39 million ounces, or $8.62 billion, per month. The Fed will be creating 1,060% more in dollars every month than the value of what every gold company in the world can dig up.

Net investment demand (investment minus retail sales) is just over 3 million ounces, or $4.1 billion, per month. And total global coin production amounts to a measly 3 million ounces, or half a billion dollars, per month. The Fed will be creating almost 20,000% more dollars than the value of what all the mints in the world can create in gold coins.

While it remains to be seen how inflationary this will all be, there’s no denying it will add to the inflation already baked in the cake. Cause has effect, and just because the government says the Consumer Price Index was only 2.1% through the first half of the year doesn’t mean the problem isn’t building. It’s intensifying, and at some point the dam will give way.

What does the investor do with this information? Make sure you own sufficient protection against the ramifications of promiscuous currency debasement. The more assets you have denominated in gold, the greater your protection. The investable assets you hold in dollars should be viewed as having a serious long-term risk of devaluation….
I think inflation will ultimately go much higher than most are prepared for – or can even imagine. If I’m right, what’s your plan of defense?

Jeff Clark is the senior editor of Casey’s BIG GOLD advisory from Casey Research. Jeff gained early experience in the metals industry while working on his family’s gold claims in California and Arizona. Every month, he informs subscribers of the status quo of the current gold bull market as well as prudent precious metals-related investments, such as large-cap gold stocks, ETFs, and physical gold.

Special Offer: Subscribers to Peter Schiff’s Gold Report can receive a year of BIG GOLD for only $39 – with a 3-month, 100% money-back guarantee. Offer expires this Friday, November 7th. Click here for details.


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