BOOM ROASTED: Peter Schiff Dishes Reality Check to Traders on Gold Prices
By Palwasha Saaim B.Sc Published : November 16, 2015
Gold Prices Could Soar After Rate Hike, Says Peter Schiff
Rate hike or not, December’s Federal Reserve meeting could send gold prices skyrocketing. At least, that’s the latest prediction from famed market commentator Peter Schiff.
After pulling a neat rally, gold is routing again to its August lows. The slump in gold prices came after the better-than-expected jobs report in October, which brought the likelihood of a rate hike back onto the Fed’s table. The Federal Reserve has indicated the probability of a rate hike while hinting that the possibility of negative interest rates cannot be ignored amid the international headwinds.
Gold investors have never been so confused. To buy or not to buy, that is the question now.
“Well there’s two possibilities, right? One is that the Fed does in fact raise interest rates in December, and the other is that they don’t. And in my opinion, either scenario is actually bullish for gold and I think this $100.00 sell-off, from just below $1,200 to now back below at $1,100, is a great opportunity for people to either position themselves for the first time in gold or increase the position they already have.
[…] Well, gold has already fallen substantially based on the fact that the Fed is going to be raising interest rates. So I think most of the downside-in fact, probably almost all of the downside, in my opinion-is already here. The gold market has already discounted the rate hikes. In fact, I believe they discounted a lot more than a quarter point.”
Schiff goes on to discuss two scenarios; the first is if the Fed does go ahead with an interest rate hike for the first time in almost a decade and the second is if the committee holds off from raising rates yet again. Here’s how he supports his bullish stance on gold under both scenarios.
In Scenario No. 1, Schiff says the Fed could raise rates:
“[…] If the Fed does raise interest rates before the end of 2015, I think that will just accelerate the onset of that recession, and so the markets, looking forward, will begin to anticipate the next rate cut, the next easing cycle, QE4. So I think if we get the highly anticipated rate hike, that could actually end up being a bullish catalyst for gold, not a bearish catalyst, because all the damage may have already been done over the years as people have been factoring this in to the price of gold.
And why do people think that higher interest rates are going to be so negative for gold? It’s because they think higher interest rates are going to be bullish for the dollar. But the dollar has already rallied for the same reason gold has declined based on the anticipation of rising interest rates. I think by the time the Fed actually gets started, it’s too little too late and the dollar is going to sell off. That is what happened the last time the Fed raised rates.”
On the contrary, he maintains his longstanding take under the second scenario, in which the Fed holds off on raising rates:
“If the Fed doesn’t raise interest rates in December, then gold prices are really going to take off, because then what’s going to happen is the people who’ve been selling gold are going to begin to question whether or not the Fed is ever going to raise rates.
They’re going to question whether they [the Fed] actually seriously were considering it or if they were doing what I’ve been alleging—bluffing the entire time, talking about raising rates only because they know they can’t do it, but also because they know they can’t admit they can’t do it, because to do that would be to admit failure and invite a run on the dollar and a takeoff in the price of gold.”
You can watch Peter’s Schiff entire commentary here.