Schiff on Mining Network: Gold Up as Easy Credit Weigh on the Dollar

Last week Peter joined Peter Gadsdon at The Mining Network for a wide-ranging conversation on the drivers behind the gold market, the true nature of global trade, and the persistent headwinds facing the US economy. In his critique of the mainstream narrative, Peter argues that headlines and central bank policies—not real economic fundamentals—are moving markets, fueling a growing demand for gold among investors and central banks alike.

Peter wastes no time explaining the recent behavior of gold prices and how headlines have shaped market moves. He observes that selling in gold often coincides with optimism in tech stocks and renewed “risk-on” sentiment:

Well, it seems to me a lot of the trading recently is kind of news-driven headlines, not so much the fundamentals. And so I think the newer headlines are, ‘oh, maybe we’re going to get some kind of trade deals, maybe the trade war is going to be ending soon or the tariffs won’t be as high.’ Plus, you’ve got some good earnings now that came out today from Microsoft, from Meta. So you’re getting a big rally in tech stocks. And over recent months, there’s been a pretty strong negative correlation between gold and those tech stocks. 

Turning to the underlying reasons for sustained gold strength, Peter highlights the central role of low interest rates and the Federal Reserve’s loose monetary policy. The so-called “restrictive” policy, he argues, is anything but:

Well, rates are too low. I mean, that’s one of the reasons gold is as high as it is. It’s because inflation is going to keep growing. The Fed never raised rates high enough to put out the fire. We’re in accommodative territory now. I mean, the Fed claims that its monetary policy is restrictive. But credit growth continued and accelerated during the entire time that the Fed claimed it had its foot on the brake, which obviously it didn’t do because governments kept going deeper into debt, households were going deeper into debt. They never stopped the credit expansion, which is the inflation. 

When it comes to the ongoing trade war and US trade policy, Peter expresses skepticism about the existence of any coherent government strategy. He sees political leaders as largely reactive, lacking any clear path out of their self-imposed dilemmas:

I have no idea if they have a game plan. They may just be winging it. They just react to the headlines because there’s no real path to victory here. We’ve launched a trade war that we can’t win. So the only question is, how do we find a graceful way out? How do we contrive some kind of fake victory from the jaws of defeat? I don’t know. I don’t even know if they realize that we can’t win the trade war. I have no clue.

Instead, Peter argues, the only real way to fix trade deficits is to address the root problems of domestic consumption, weak savings, and a broken tax and regulatory system. Tariffs, he insists, are a distraction from this core economic issue:

What our goal should be is to eliminate these trade deficits by going after the root cause of the deficits, which is our excess consumption, our lack of savings, our lack of capital investment. All of this is a byproduct of artificially low interest rates and huge government budget deficits and a tax code that encourages debt. So what we should do is dramatically cut government spending, including on entitlements. We should allow the Fed to raise interest rates substantially so that people start saving again and stop buying stuff using credit cards. 

Finally, Peter circles back to the implications for gold, pointing out that central banks and private investors alike are waking up to the reality of a declining dollar and persistent inflation. He sees this as the ultimate tailwind for gold, suggesting this trend is only in its early stages:

I think the biggest driver for gold really has been central banks understanding that the dollar’s days as the reserve currency are numbered. Nobody knows exactly how large that number is, but they know that it’s getting smaller every day. Central banks need to replace dollars with another monetary reserve and the best choice is gold. That’s what’s happening. You’re seeing central banks accumulating more gold. 

Make sure you check out Peter’s latest podcast, where he analyzes recent market action in more detail.

Receive SchiffGold’s key news stories in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!