Schiff: The Lull Before The Storm

Via SchiffGold.com,

Over the last several months, gold and silver have faced strong tailwinds due to market expectations that the Fed would tighten monetary policy sooner rather than later to fight price inflation. But after April’s hotter than expected CPI, that sentiment seems to have shifted and the markets are acting the way you would expect in an inflationary environment. Gold and silver have rallied and the dollar has shown weakness. In fact, gold pushed above the $1,900 an ounce level.

In this Gold Videocast, Peter Schiff explains why he thinks this is just the lull before the real storm and now is the time to buy gold and silver.

It’s been a long hard grind to get gold back to $1,900 an ounce. A lot of investors have been frustrated that the yellow metal hasn’t made a bigger move faster. Peter said he thinks those days of frustration will soon come to an end.

I think vindication is around the corner because I think a major move up in both the price of gold and silver is imminent. And in fact, to the extent that people still have cash on the sideline that they are yet to commit to the market, I would not wait. I would suggest that everybody have a full position. So, whatever you feel your allocation is going to be to physical gold and silver, my suggestion is that you fully allocate now. Don’t wait for lower prices because you’re probably going to be waiting indefinitely. I doubt they are going to get much lower. In fact, I expect them to get much higher.”

Peter said he also thinks the premiums on bars and coins will go much higher as demand spikes. In fact, we have already seen shortages of some products. The US Mint had to ration sales of American Silver Eagles earlier this year.  So the sooner you buy, the cheaper you will be able to get your gold and silver.

But why hasn’t gold seen a bigger rally with the increasingly high levels of inflation?

The investment community kept expecting the Fed to pivot and tighten monetary policy sooner rather than later to fight it. They were looking for interest rate increases and quantitative easing tapering. This created headwinds for both gold and silver. Meanwhile, the central bankers at the Fed keep telling everybody that inflation is “transitory” and nothing to worry about. Peter said he’s seen this song and dance before.

It is eerily familiar to what the Federal Reserve did back in 2007 when facing the subprime mortgage crisis.”

Peter reiterated that he thinks the central bankers are wrong to think price inflation won’t become a big problem, just like they were wrong in the days leading up to the 2008 financial crisis when they insisted subprime mortgages weren’t a problem.

The Fed couldn’t have been more wrong if it did so intentionally. And in fact, maybe the Fed did intentionally mislead the public. They were so worried about the mortgage problem that they lied and pretended it was contained. The same thing is probably happening now with inflation. The coming inflation crisis is going to be far worse than the financial crisis. And now the Fed is again telling everybody that there’s nothing to worry about, that all these prices that are going up — this is all transitory. The prices are going to come back down and so they’ve got nothing to worry about. Well, inflation is as transitory today as subprime was contained.”

And if inflation does turn out to be problematic, the mainstream is still convinced that the Fed has the tools to fight it.

They don’t.

Soon, the markets are going to discover that they’re completely wrong. First of all, inflation is not transitory at all. Inflation is permanent and it’s going to get much, much worse. And B, the Fed can’t do anything about it. The Fed is all bark and no bite when it comes to inflation-fighting. It has no ability to fight inflation because it has created such a massive credit bubble. There is now so much debt in the system thanks to the Fed that if the Fed were to raise interest rates to fight inflation, they would collapse the entire house of cards economy that they’ve been erecting over the years, and so they’re not going to do that.”

There is no normalization coming for monetary policy. In fact, the Fed will be pouring gasoline on the inflationary fire. Peter said we’re on the road to stagflation.

This recovery that everybody is talking about is a myth. We haven’t recovered from anything. All we’re doing is spending the money the Fed prints. But because the Fed has printed so much money for us to spend, the price of everything we want to buy is going through the roof. And so when the markets come to terms with this reality, then the price of gold is just going to go ballistic. And before it does, you want to buy as much gold and silver as you can.

It seems that everything has been in a bubble except for gold. Why is that?

Gold is the money by which everything else is overpriced. The reason that gold is not in a bubble is because everything else is in a bubble in terms of gold. Gold is the stable store of value. Gold is real money. It’s safe haven. And during bubbles and manias, everybody wants to buy the risk assets. … I expect all of those bubbles to pop — the air to come out. But the way I expect them to deflate is not with their dollar price going down, but with the gold price going up. That’s how all these bubbles are going to pop. The price of everything is going to crash when expressed in gold and silver. And so what you want to do in advance of the deflation of the everything bubble is to won the asset that everything is going to be deflated against, and that is real money. That is gold and silver.”

Peter said he thinks we’re on the cusp of an explosive leg up for gold and silver. Right now, people are like a deer in the headlights. They don’t really know what’s going on. They’re still paying attention to the Fed telling them not to worry. Before the mainstream figures out that they do need to worry, you need to front-run that.

Buy as much gold and silver as you can before you have to compete with a herd and they’re all trying to get through the same small door together. That’s not going to work out very well. The prices are just going to go straight up. Right now, it’s the lull before the storm and it’s time to act.”