Peter Schiff - Where is the Bottom In Gold?
JUNE 26, 2013

Wed 26 Jun 13 | 02:04 PM ET

The following transcript has not been checked for accuracy.

your top stories, metals in full meltdown mode. gold down 26% per. by the way, on track for its worst quarter on report. silver even worse, down a whopping 39% year to date. peter schiff , my take is not why gold collapsed off its highs but should gold ever have been 19 bucks an ounce in the first place? you have speculative longs getting out, speculative shorts getting in, but i think everybody is operating under a false narrative and so gold is being mispriced. the u.s. economy is not recovering. we're entering back into a recession and might be in recession by the end of this year. how can you see it's not recovering? look at all the data prices. housing prices won't keep rights. they are about to roll over and make new post-bubble lows. the fed is not about the tightening. they will ease and do more qe and not less. i think when the market figures this out there's going to be a sharp reversal in the price of gold and people who are selling it now will have a big problem trying to buy it back. mike, to brian's earlier point, to what extent do you feel that gold has become overowned over the meltdown of 2008 and basic what we're seeing now is an unwind of all of that? yeah, that's pretty much straightforward, right? look, investors we know, human behavior drives most investing. we know people buy stuff when it's going up, and so look at the bubble period, enormous amount of flows into the now easily available way to purchase gold, the etfs that are available. massive amounts of flows going into those and during the middle of the 2000s when equities were going nowhere. people were buying gold because it was going up. why are they telling now? because it's going down. to peter's point. w shorts are coming into this thing every day. it's clearly a favorite of hedge funds to be punishing gold. i'm not quite as negative on the economy and the outlook as he is, but, you know, we do think that gold is getting a little bit of speculative oversold here, but, you know, the problem with this, talking about behavior and people chasing prices, where's the bottom? really hard to say. where is the bottom, peter? how much does this have to go on until we get to a real reason to get back in? we know at $1,200 the majority of gold mines can't mine it profitably. gold is trading for less than the cost to produce it and in order to produce it you have to own a gold mine which is very hard to do so the price of gold can't stay down here for a long period of time because the gold mining companies will shut down and there will be no supply so i don't know exactly -- i push back a little bit on that, pete. heard that 1,200 bucks thrown around. listen, i get it, but what i don't understand is did any gold miner produce any gold at all before gold hit 1,200 bucks an ounce, and they did, so the price of gold production has either gone way up which means it can go down again, or that number is not true. no, remember. there's been a lot of inflation that the government doesn't want to acknowledge but you can see it in the cost of mining. meanwhile, look at crude oil prices, still at $95 a barrel. i mean, if you look at the gold-oil relationship, gold is extremely cheap relative to oil. the cost of mining has gone way up. i don't even think the price of gold has kept up with it because there's so much more inflation in the pipeline than is generally perceived. but, you know, again, there's an expression in poker, don't count your chips while you're still sitting at the table. a lot of gold shorts that think re making a lot of money, let's see how much money they have made when they actually cover bec i think when the traders figure out the true predicament that we're in and that the fed is in and how much more money is going to be printed i think gold can rise even faster than it fell. heard the inflation argument many, manytimes, jim rogers has said we'll get a waffle inflation because of all the central bank money printing. we just haven't had it. don't you think the inflation argument for gold is getting old? no. we've had inflation. we haven't had hyper inflation. mike first and then peter, you can get a word in. part of the reason why gold went up, the anticipation of inflation that frankly isn't coming and hasn't come and probably won't come, right? at least not for the foreseeable investable future. the unemployment, the job problem is going to continue to create downward pressure on prize around the globe. this is a ---ins a 1970s argument that's not valid in today's world. that's why interest rates are at secular lows, even from the very low levels. this is -- gold does well in a negative interest ra environment. interest rates are clearly turning slightly more positive, another reason why gold is going down. look, the -- the big elephant in the room is the central governments that own gold, and they can jerk this thing around any way theywant, so is it beyond reason to think that they are manipulating the price of gold to keep people into the equity markets, won't surprise me a bit? really, it wouldn't, because those things are going around, mike. people are talking about it. are central banks manipulating the price and conspiracy blogs throwing this stuff up. how about the fact that it's darn easy to selld these days because it's not just a wheelbarrow in a safety deposit box? it's a piece of paper and a computer tranion? why would it surprise you that they manipulate the price of gold when they clearly manipulate the price of the bond market every day, right? it doesn't take a huge leap of lodge take say that. again, i'm not a conspirac theorists, i'm not a gold bug and don't have any parr dog in this fight here, the point is that -- that they are the largest owners of gold in the planet collectively, and if ey -- if they decide that they want the price of gold to go down because it's gotten too expensive, want to chase people in equity markets as they have been doing with fixed income, they can. it's not too complicated. meanwhile, let me get a point in here about inflation. peter? inflation is by definition an increase ofply and money and credit. that's what the central banks are doing. they are inflating and creating inflation, and you're not seeing falling consumer prices. people might want to talk about it, but actually speak to people who shop, who actually go to stores. the prices for the things that we buy are going up. now maybe real estate prices -- that's just not true. no, it is true. you know, i talk to people every say. when is the last time you bought a mother, pensive television? excuse me? when was the last time you bought a more expensive television? well, i don't buy televisions every day, but i'll tell you, the television sets that people buy, you know, they don't last as long as the used, to but it's not the television sets. that's -- that's technology that's bringing prices down. television sets would be even cheaper if the government wasn't printing all this money. that doesn't mean there's nine flakes. fair enough. the cost of living of living is going up, but it's going to skyrocket, but you can't wait until inflation is running out of control until it's 40%, %, 100% a year to do something about it. when nixon imposed wage and price controls which i think was wrong, the cpi was going at 4% a year. if we measured inflation today the way it was done when nixon was president, it's more than 4% a year. guys, and i don't want to get into some wonky inflation argument. for that we need to bring in steve liesman and nobody wants to do that. mike, a quick question for you before we wrap it up which is this. sure. whatever the reason gold is being sold, we know it's being sold. people are pulling in cash, bonds are being sold. people are pulling in cash. where is that money going? well, a lot of the money isn't going anywhere. go ahead, mike. it's just -- part of the money is staying in cash. we're in an unsettled time. people are trying to find places that are going to be -- that are going to be stable. i do think that equity prices are going to continue. equities will continue to see inflows because they have been going up. it's really about that -- that simple. you know, we've seen global equity prices fall substantially, particularly emerging markets, but i do think u.s. equity prices will still get supported as we're seeing yesterday and today so i do think some of the money is leaking into equity markets and also into real estate over the last -- well, we know what prices have done over the last year and real estate in general, both housing and commercial real estate so part of that is where it's going. i -- i think everybody makes a different decision but we know it's out of gold. peter, very quickly, bottom line, a gold has been going down and you've been continuing to say y, buy, buy, any clients called you up and like blasted you for this and said you've been making -- making this call and losing money? look, i've been telling my clients to buy gold since it was under 3 hub. i don't have a crystal ball on the corrections, but i think it's the clients and the brokers who have been telling their clients not to buy gold since it was under 300. they are the stop clocks. get a correction and now they come out and say, se we were right. this is not the end of the bull market on gold, so when gold makes a new high, i'd like to see you guys bring out all the nay sayers and ask them what they are telling their clients, who they told not to buy gold. we certainly l.peter, a good point. if you bought before 2010 you're stn the money. gold wasn't here until two years ago. a good discussion, guys. thank you both very much.


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