Schiff on Commodity Culture: Gold and Silver are Poised to Surge

Peter recently joined the Commodity Culture podcast to break down the recent pullback and consolidation in gold prices, and why he sees the metal’s long term trajectory still pointed higher. He also discusses silver’s historic breakout, the mounting debt burden weighing on economies worldwide, and compares American entitlement programs to a wheelbarrow with too many riders and not enough pushers.

Peter starts by addressing gold’s recent dip below the psychologically important $4,000 level, attributing the pullback to shifting expectations around Federal Reserve policy. He explains why he views the current price action as healthy consolidation rather than a reversal:

I think it was the fears of a tighter Fed and higher rates that caused gold to surrender the gains from that balance. But I think that we’re retesting and building solid support around that 4,000 level, which is where gold initially fell to after hitting a new all time record high about 5,600. The gold market broke back down slightly below 4,000. I think it maybe traded below 4,000 for one day, maybe two tops before recovering.

Many investors assume rising bond yields are bad news for gold, since gold pays no interest. Peter flips that conventional wisdom on its head, explaining why higher rates in today’s environment actually make the case for gold stronger, not weaker:

So the negative yield is going to get bigger, which creates an even bigger incentive to avoid the loss by buying gold. So rather than a headwind for gold, I think the rising bond yields are going to be a tailwind because they’re not going to rise enough to offset the loss to inflation. And in fact, as rates rise and more US government debt matures and needs to be rolled over, and you get this upward pressure on the cost of carrying debt, the most recent government numbers showed 1.4 trillion now is the annual tab for interest on the national debt.

That ballooning interest bill is just one symptom of a much bigger problem. Peter points out that the debt levels that seemed manageable decades ago are a completely different animal today:

The debt chickens are coming home to roost all around the world. That is the difference. And people are very complacent too if they look back 20 years ago and say, well, we could handle 5% treasuries. We could handle a 7.5% mortgage 20 years ago. So why can’t we handle it today? Well, there’s a big difference. We have a lot more debt today than we did 20 years ago.

Turning to silver, Peter traces the metal’s decades-long battle with resistance near the $50 level, a ceiling that held firm through multiple bull markets going back to 1980. He explains how silver finally broke free once gold cleared its own major hurdle:

I think that $50 is the support because I think that was the resistance that basically was holding the market back since 1980-81. It acted as very substantial resistance in 2011. And even as gold initially rose from 2000 to 4000, silver still couldn’t get above that. It wasn’t until gold really finally had that $4,000 to $5,000 rally that all of a sudden silver went from 30 to 125. It was just an explosion with a breakout.

Shifting away from metals, Peter offers a word of caution on the artificial intelligence enthusiasm that has gripped markets. He warns that the road to any AI-driven prosperity will likely be rockier than investors currently expect:

So I think that before we get to the AI promised land, we’re going to be wandering in the desert for a while. So there’s going to be some problems that nobody is really concerned about. But all of a sudden, everybody will be concerned when it’s too late to do something to prevent it.

Peter closes with a metaphor to describe America’s entitlement predicament, where a shrinking pool of workers is being asked to support a growing number of dependents. He warns that this imbalance cannot continue indefinitely without consequence:

It’s like if you’ve got a certain number of people who are riding in the barrel, in a wheelbarrow, and then you have a certain number of people who are pushing it and making it go, you know, if you try to get more people in that barrel and fewer people pushing it, pretty soon the people pushing it just give up. It’s just too hard. And everybody wants to go in the barrel. But then there’s nobody left to push it.