Schiff w/ Grabarskyy: Pay Attention to What Central Banks are Buying

Last week, Peter joined Vladyslav Grabarskyy from Wealth Building Blueprint for a discussion on the state of the economy and metals markets. Peter takes Vladyslav through the case for hard money and explains why he thinks gold and foreign assets will outperform dollars and domestic stocks. He connects rising inflation, central-bank behavior, and geopolitical spending to higher gold prices, while warning that crypto and bond allocations face trouble.  

Peter opens by reminding listeners that gold still has room to run after years of central-bank money printing and currency debasement, and he explains why further inflation should push the metal higher:

I think gold is still relatively undervalued. Gold has gone up quite a bit in the last few years, although it’s pulled back, you know, pretty substantially since its peak in late February. But I think gold’s move was just kind of catching up to where it should have been years ago, given all of the money that the Fed has created and other central banks. I don’t think gold kept pace with that amount of inflation. But, you know, it’s caught up or maybe it has a little bit more to go, but we’re going to create a lot more inflation. So the price of gold is going to have to continue to rise to reflect the debasement of fiat currencies and, in particular, the debasement of the U.S. dollar.

He follows by laying out a tactical view: consolidation now, then another breakout as geopolitical tensions and war spending add inflationary fuel — and he gives a specific upside target and a note on current buying levels:

And I think it’s consolidating and getting ready for another breakout. And I think it’s going to run to new highs. I think it’s going to be above 6,000 before the end of this calendar year. And it’s, you know, at 47, 4800, it’s a good buying opportunity now. And, you know, the war, one of the reasons the war is positive for gold is because wars are inflationary, not just because of the war itself, but because of the way we pay for them.

Peter then contrasts nominal asset prices with real purchasing power, arguing that stocks look good in dollars only because the Fed inflates the unit of account — but in gold terms equities have been poor performers and could worsen if more QE is required:

Well, in a nominal sense, probably if the Fed creates enough money, stock prices will go up in terms of the money that the Fed is creating in terms of dollars. But in real terms, stocks will accelerate their losses and that’s measured in gold. And if you look at the stock market price in gold, it’s down about 75 percent over the course of this century, from 1999, 2000 to today, the Dow has lost about 75 percent of its value if you price it in gold. And so those losses will continue and accelerate to the extent that the Fed has to go back to QE to prop up the stock market.

On crypto, Peter is blunt: he expects Bitcoin to test lower levels and for the broader crypto complex to follow as speculative air comes out of the bubble; he anticipates lower lows and lower highs for the time being:

But below the 60,000 level that it bottomed at around the time of the breakout of the war, I think Bitcoin is headed below that level. It could go substantially below that level before bouncing back for the next sell off. But I think we’re going to be making lower lows and lower highs as the air comes out of the Bitcoin and the crypto bubble. So as Bitcoin goes, so goes the rest of crypto.

Peter concludes by pointing out a structural move that ought to matter to private investors: central banks are buying gold and reducing exposure to currencies and treasuries, and if allocators in the private sector begin to do the same it should add further upward pressure to gold prices:

And to the extent that private investors, banks, advisors start to recommend that people own fewer bonds and introduce gold into their portfolio as a better hedge, that’s a significant development. Because central banks are already doing just that. They’re moving more into gold and out of the currencies or out of treasuries. And so the private sector should be doing the same thing. And if they are, that’s just going to put even more upward pressure on gold because gold prices went way up as the public was selling gold and the central banks were buying it.