Gold pushed above $2,000 an ounce on Tuesday and made a run at the all-time record high. The yellow metal was up $54 on the day, closing at $2,052 despite some selling after it nudged the all-time high.
Some of this is clearly safe-haven buying due to the situation in Russia, and a lot of analysts think gold will fall back to earth once that situation resolves. But Peter Schiff doesn’t think so. In his podcast, he explains why gold would be going up even if Russia never invaded Ukraine.
Gold stocks have lagged behind the rally in physical metal. Peter said this indicates that a lot of investors don’t think this gold rally will hold.
Gold is going up, as it should go up. But because of this event, you have people who think, well, that’s the only reason gold’s going up.”
And at some point, the situation in Ukraine will resolve.
A lot of people think, well, as soon as this thing gets resolved, the price of gold is going to crash, and so I’m not going to buy these gold stocks based on a temporarily inflated gold price. … If you think the gold price is going to crash once we have some type of resolution of this Russia situation, you are reluctant to pay up for these gold stocks.”
But Peter said he doesn’t think an end to the Russia-Ukraine war is bearish for gold. He did concede that the price of gold would likely drop on the day we get news that the war is resolved and sanctions are lifted. But Peter said it won’t stay down.
Before too long, whether it’s a matter of days or maybe a matter of weeks, gold will make a new high. Because gold is going up regardless of what goes on with Russia and Ukraine.”
Keep in mind, gold was on an upward trajectory before the Russian invasion. The Fed was on the cusp of raising rates, so higher interest rates were already factored into the price. The US economy was already in the process of rolling over. Just look at the January trade deficit. It set another record high.
The US economy is extremely weak. We are hemorrhaging red ink with these massive deficits. These deficits would have been weighing down the dollar.”
In fact, the dollar was falling prior to the Russian invasion of Ukraine. The war has driven safe-haven buying into the dollar over the last couple of weeks. This is actually a headwind for gold.
The gold market was already looking behind the rate-hike mountain into the rate-cutting valley because after the Fed finished the rate hike cycle, which I think was going to be a very truncated cycle — it may have even ended before it began because even the tiniest of pins would prick this bubble. And as the US economy moved into recession, the Fed would reverse course, cut rates, return to QE, and I think the gold market already started to factor that in. And so, since the Russia situation has now caused this safe-haven rally into the dollar – the dollar index now at 99 – that is a headwind for gold. Had the dollar index continued to fall, that would have been more bullish for the price of gold.”
Also prior to the invasion, there was a major rotation out of US stocks into European stocks. In a rotation out of momentum into value, Europe had a lot of those value stocks. That was putting even more pressure on the dollar. Meanwhile, we were also seeing a movement into commodities, including gold and silver. So the situation was generally bullish for gold prior to the Russian invasion of Ukraine.
Peter said the Russia-Ukraine situation is “just a bunch of noise.”
The real story is one of inflation. And the inflation story is getting bleaker and bleaker for America and other countries, and brighter and brighter for gold.”
Think about how much the landscape has changed for gold in a bullish direction. Today, we have $125 oil, food prices are skyrocketing, the NASDAQ is in a bear market.
So now, whatever investors were penciling in as far as how many hikes the Fed was going to make, or how quickly or by how much the Fed’s balance sheet was going to shrink, they’ve had to refigure those numbers. They’ve had to cross out some of the rate hikes that they had penciled in or erase them. The same thing with QE. Clearly, whatever you thought the Fed was going to do, they’re going to do less of it given what’s going on right now.”
We may get one-and-done with rate hikes. And the Fed may not even start shrinking the balance sheet. This is bullish for gold with or without the Russia-Ukraine conflict.
In this podcast, Peter also talks about the stock market, the price of oil and bitcoin.