Peter
Schiff on Gold and Gold Stocks - Buy !
Peter Schiff: Gold and gold stocks are the best bets By Marc Davis, July
07, 2009
Gold
prices are poised for a “spectacular” and prolonged rally
as the recession deepens and investors finally become disillusioned
with the U.S. dollar.
So says renowned Wall Street financial forecaster and economist
Peter Schiff, who loudly warned of the October 2008 stock
market crash and accompanying recession as far back as 2006.
Since the global economic meltdown, the president of the
Connecticut-based investment firm Euro Pacific Capital has
struck a chord with rattled investors who have lost faith
in America’s bedrock financial institutions. Hence, his well-received
television media blitz in recent months has focused on extolling
the virtues of owning gold bullion or gold equities, as well
as urging Americans to get out of U.S. denominated investment
assets.
In a recent on-camera interview with BNW Business News Wire,
Schiff suggests that the looming prospect of a hyper-inflationary
environment in the U.S. will severely debase the greenback
over the next few years. And the global investment community
will realize that gold represents the ultimate “store of value”
as a safe haven replacement for a discredited U.S. dollar.
Hence, gold bullion and gold-related investments, such as
gold equities, will prove to be the best way to shield one’s
money from the ravages of a protracted and severe inflationary
environment, Schiff says.
“If you really want to grow your wealth, you should own gold
in the mining sector,” he adds, while also suggesting that
gold equities (companies that are already in production) offer
the greatest leverage to rising gold prices.
“With gold stocks, there’s obviously a lot of leverage to
higher gold prices. As millions or billions of people discover
gold as a store of value and as a way to escape inflation,
there’s going to be tremendous demand and somebody’s going
to have to supply that demand. It’s obviously going to have
to be mined,” he says. “So the companies that have gold and
mine it are going to see profit margins explode.”
This extraordinary scenario will be accentuated by two key
developments, Schiff says. One of them concerns the fact that
burgeoning demand for gold will continue to outstrip annual
global output. In fact, world gold production has been steadily
declining since it peaked in 2001 in spite of a nearly U.S.
$600 rise in gold’s price since then.
“Mines are not as productive as they used to be. Supply is
very constrained. So if we get a big increase in demand, there
are really no significant new gold deposits that are going
to come on-stream any time soon. So the companies that are
already producing are simply going to be able to get a lot
more money for the ounces that they pull out of the ground,”
he adds.
The other key consideration is an inevitable return to the
‘Gold Standard’ as a way for the world’s central banks to
attach a meaningful valuation to each of their country’s currencies,
Schiff says.
“The only solution to the economic problems that we have
today is a return to sound money… The world is ultimately
going to have to move away from the ‘Dollar Standard’ and
back their currencies with something real. I think gold is
the best thing to use. Gold has been money for 5,000 years,”
he adds.
“When we go back to a real monetary standard…you’re talking
about billions of people who don’t own any gold right now
who will. Where’s the gold going to come from? It’s going
to get mined.”
So obviously, in order for the world to go back to a Gold
Standard, given how much paper money the U.S. government has
printed, gold prices are going to have to be up in the stratosphere
to make it work,” he declares.
“I think that gold is going to go to many thousands of dollars
an ounce. I’m not exactly sure how high but I think it will
be a spectacular run.”
Hence, gold producers will be big beneficiaries of the paradox
that the noble metal is gradually reverting back to its traditional
role as a last-resort hedge against economic turmoil and political
crises at a time when underground supplies are beginning to
dry up.
This suggests that gold stocks will be counter-cyclical investment
stand-outs for the next few years, Schiff says. Against a
grim backdrop of painful and pronounced economic contraction
in North America, gold miners will literally have a license
to print money.
“This is one sector that we can be very optimistic about
because gold companies are going to be in the business of
producing money. That’s going to be the money that people
want. Not what the central banks are printing, but what gold
mines are producing. That’s going to function as money,” he
adds.
Yet, even though most gold producers are already experiencing
impressive year-on-year earnings growth that promises to dramatically
accelerate over the next few years, their lustrous prospects
have yet to win over the mainstream investment community,
Schiff says.
“I think a lot of the gold stock prices don’t reflect how
high gold prices are going to go and what that’s going to
mean to the profitability of these companies. I don’t think
that this is appreciated by the market,” he adds.
Indeed, small to mid-sized gold mining stocks are still being
overlooked by most investors for their trend-bucking tremendous
growth potential, Schiff says. Additionally, most of these
gilded equities have been over-sold since the onset of the
recession and can still be acquired at bargain basement prices.
“Most stocks are significantly below what they were (in 2007),
even though the price of gold is higher and the cost of mining
is lower,” he says.
“And I think that the price of gold is going to keep rising
faster than the price of producing it. And so gold companies
are going to remain very profitable.”
Meanwhile, the next major up-leg in what Schiff refers to
as the early stages of a secular bull market for gold is not
far off, he says. It has merely been delayed by an unexpected
and unsustainable rally in the U.S. dollar in recent months.
One that has been caused by global deleveraging and by the
false sense of security that investors gain from moving their
money into U.S. treasury bills in a time of crisis, says Schiff.
“One of the reasons that gold isn’t stronger is because of
this temporary strength of the dollar. This is keeping the
gold market in check. And the dollar is getting some of the
safe haven money that should be going into gold,” he says.
“At some point that will stop. The people who are buying
dollars will realize that there’s no safety in dollars. Because
the central banks are going to try to pay for the economic
bailouts and stimuli by looting the world’s savings and by
printing money and debasing it.”
“So, if you want to escape that, you hold gold, which is
something that the government cannot debase,” he concludes.