Peter Schiff Interview: Gold Poised for "Horrific Rally"

Gold is the Opposite of a Bubble

Written by Jimmy Mengel
Posted July 17, 2013

Monday we brought you a controversial analysis on the economy from Peter Schiff.

In his interview, he explained why all the talk of the Fed's QE tapering was a total bluff... that there is no exit strategy... and that they may “step on the gas” and start pumping up to $250 billion a month into the economy...

Obviously, this will all have serious ramifications for the precious metals market.

In part two of our interview with Schiff, we explore the bottom in gold — and why it is poised for a “horrific rally.”

In addition, he offers an interesting solution for those worried about the falling value of the dollar.

Ok, Peter... So let's say your predictions come to pass and the Fed ramps up the money printing. What does that do to gold in the long and short term?

It's going to spike in price. It's setting itself up for a horrific rally. You've had so much speculative liquidation. A lot of the gold that speculators have bought in the last few years has been liquidated over the last couple months. 

When the market turns around, as it will, when the people who sold it want it back again because the prices are rising again, when people realize that we aren't in a recovery, the Fed won't stop easing... when people realize why gold has been going up for the last ten years, they'll want to buy it back.

But when they want to buy it back, where is going to come from?

I don't believe that the institutions and individuals buying gold the last couple months are interested in selling it. When gold goes to $1,500 or $1,600 again, they won't be blowing out of their position.

I think the gold being bought will never be sold.

There will be a huge rush to buy gold when the momentum turns. And we know miners aren't going to be producing it. Production won't be there, and the supply was just bought up and taken off the market.

I think this could be setting up for a spectacular, parabolic rise in the price of gold.

It's been a bloodbath for gold over the last year. Can you even begin to predict a bottom at this point?

It's hard to pick the bottom, because you are usually wrong... but what I tell people is, “It doesn't matter where the bottom is.” 

What if it goes to $1,000 or $800? There are a lot of “what ifs.” It doesn't matter, because it can't stay down there. Not for any length of time.

If I'm not planning on selling it until it hits $5,000 or $10,000, then does it matter that it went to $1,000?

But if I sit here and say, "I'm not going to buy until it hits $1,000," what if it hits $1,002 — and then goes straight up to $3,000? You may have been close, but you didn't get any of it.

So you don't know where the bottom is. And why would you try to be so cute about it that you'd wait until it hits exactly $1,000?

I'm sure that gold is going higher than $5,000 an ounce, I just can't be sure of when. I'm not saying ten or twenty years from now, I think it will be far sooner. But it's hard to know. There are so many external events that can slow the growth of gold.

I'm not clairvoyant, but I understand the macro fundamentals that will drive it. Just like when people were asking me about the housing bubble: “When is it going to burst, Peter?”

I didn't know exactly when, I just know it's a bubble, I can describe exactly why it's a bubble, and therefore it's going to burst. And it did.

Gold is the opposite of a bubble. If you look at the cost of mining gold, the price of gold hasn't even kept pace with the increase of the cost of mining.

If gold were a bubble, then mining companies would be making money hand over fist, because the price of gold would be divorced from the cost of producing it. Price would fundamentally be way too high.

Gold companies are losing money because gold is the opposite of a bubble.

Gold prices should have gone up more than they did, but they went down.

So your bank, Euro Pacific Bank, offers some very interesting ways for investors to protect and grow their wealth. Can you tell us a bit about what makes Euro Pacific unique?

Well, the good thing about our bank is it's both a bank and a full-service discounted brokerage firm and asset management company — sort of a one-stop shop if you want an offshore bank account: You can buy stocks, bonds all around the world, you can trade commodities, Forex, my proprietary mutual funds. You can even pay me to manage your money for you. Or you can do it all yourself online for very low commission. You can design your entire experience.

We're also providing a banking platform where you have 100% confidence that the bank cannot fail due to leverage. We have 100% reserves — all deposits are there, we do not loan them out. If every one of my customers came to the bank today and demanded their money, we can actually give it to them — 100% — which you really can't say about other banks.

I don't have any bad loans, mortgages, any government bonds... unless you as the customer want them. It's all up to you.

While a normal bank will take your money and buy government bonds for themselves, you don't own them. And if the government fails, they lost your deposit.

That's all extremely attractive, considering the uncertainty we've seen with Cyprus where folks woke up one day with their capital wiped out.

Right, so we do not speculate with bank capital, so you don't have any of that risk.

You won't wake up one morning, like with the Cypriot bank accounts, and now there's a “haircut” where you'll lose your deposits. There are governments trying to seize money from law-abiding citizens.

People need to have their money in areas where corrupt governments cannot get at it.

The only way you'll lose capital with us is if you do it on your own. The bank won't do anything risky with it.

It's all about trust: “Can you trust your banker? Can you trust that your money is safe?”

I'd like to think that my reputation speaks for itself. What you get with us is peace of mind: Your money is there, and you can get it whenever you want.

I was most intrigued by a unique debit card that Euro Pacific is offering, which you can back with either gold or silver. Can you tell us a bit about it?

It's an exciting prospect. We make working the gold and silver into your debit card very easy...

Let's say you buy $10,000 in gold. You can access that gold using our debit card. You log into your account, and let's say you want to buy something for $1,000, and you have $10,000 worth of gold...

You log on, sell $1,000 worth of gold, and then — with a click of a button — you load up the debit card and make your purchase.

It takes, like, 10 or 15 seconds and you can do it 24/7: It's instant access to your gold, which we store offshore at the Perth Mint. And you can spend it.

Unlike buying and selling gold, we make it quick and painless. Right now, you'd need to wait until Monday, look for a buyer, wait for a check to clear, wait for a wire, go to the bank...

With us, you can just log on and spend it, 24 hours a day, 7 days a week.

It's almost like spending your gold directly. And in the future, you will actually be able to.

Currently you have to take the 10 seconds and sell it. Right now, clients can transfer multiple currencies to other clients — and in the near future, they will be able to transfer gold and silver to other users. So in effect, they can trade between each other.

But the ultimate goal is to spend your gold directly?

Yes, but first we have to obtain critical mass. We need to get enough people to join us so we can implement these other features.

If we get enough members, we will be contacting businesses that want to be paid in gold. The goal is to eventually start an entire community of folks who want to be paid in gold.

So it would be kind of like an eBay or Craigslist for gold bugs?

Right.

So say you have an apartment in Paris that you want to rent out for, say, an ounce of gold a week. Someone could say, "Great! I'll take a two-week rental and transfer two ounces of gold to you."

Or maybe you have a boat to sell... Since we're both members of Euro Pacific, you can just give me the equivalent in gold. But it doesn't just have to be person to person, either...

Let's say some merchant wants to put their products online with us with the price based in gold. They can post it in grams of gold, and you as the cardholder can internally shop with the card in gold. We'd take gold from your account and transfer it to the merchant.

You don't have to physically ship it at all, since we hold all the gold.

So the more people we sign up, the easier it gets to use. I know there are people who want to be able to use their gold and silver as money. The community of our clients can buy and sell things in each other, which cuts out transaction costs, since we can set up both clients and merchants and create this marketplace.

We'd have a list of vendors on the website and you can choose whether to pay in dollars, euros, gold, or silver. This would be implemented.

Right now, you still have to take the 10 seconds to sell your gold before you use the card for purchases. But we're planning for the future.

So when the shit hits the fan and the dollar collapses, you will already be part of a gold monetary community. You've got a mechanism to keep functioning. You've already put it together, and have your own community that can spend gold and silver as money.

I think that sentiment really hits home for a lot of our Outsider Club members. How can they get in on the community?

Well right now, because of the crazy U.S. regulatory system, it is only available to people outside of the United States...

But if you need more information, we have plenty of folks at Euro Pacific that can answer questions for you and get you set up very quickly. The quickest and easiest way to get more information is to visit the website and you can actually chat with someone online right away.

Thanks for talking with us Peter, we appreciate your time.

My pleasure, thanks for listening.

If you'd like to learn more about joining the gold and silver community that Peter mentions in his interview, click here.

Remember, you must be currently living outside of the United States to join any of Euro Pacific's programs.

To read the first part of my interview with Peter Schiff, you can do so here.

Godspeed,
Jimmy Mengel

Jimmy Mengel

follow basic @mengeled on Twitter

Jimmy is a managing editor for Outsider Club and the Investment Director of the personal finance advisory The Crow's Nest. You may also know him as the architect behind the wildly popular finance and investing website Wealth Wire, where he's brought readers the stories behind the mainstream financial news each and every day. For more on Jimmy, check out his editor's page.

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