Investors should ignore the mainstream media’s constant banter against gold because the U.S. dollar is on the verge of collapse and gold prices could soar. At least, that’s the view of renowned investor Peter Schiff.
Last week, Schiff was livid over comments published in The Wall Street Journal on gold. In a column by Jason Zweig, the financial writer called the yellow metal “a pet rock” and owning gold “an act of faith.” (Source: The Wall Street Journal, July 17, 2015.)
“Gold is supposed to be a haven amid hard times and soft money,” he continues. “So why, even as Greece has defaulted, the euro has sunk against the dollar, and the Chinese stock market has stumbled, has gold been sitting there like a pet rock?”
Schiff, a longtime advocate for owning gold, was quick to respond. In a column published at The Daily Reckoning, he argued that you cannot consider gold just as a class of investment, because the shiny metal has been used as money in every culture at every point in human history. Its scarcity, ease to carry, inertness, and other physical properties made it an excellent medium of exchange. (Source: The Daily Reckoning, July 22, 2015.)
It does not take any faith to invest in gold, while it takes a lot of faith to own fiat money. He argues that the value of fiat money comes entirely from faith in the issuing state. The faith is that other people are willing to accept paper money issued by the state in exchange for goods and services.
“Up until 1971, the U.S. dollar was backed by the faith that the government would redeem its notes in gold,” Schiff wrote. “But, since then, that faith has been replaced by a simpler faith that others will always accept U.S. dollars in exchange for goods and services of real value.”
“Most investors would certainly prefer gold to Argentine Pesos, Ghanaian Cedis, or Venezuelan Bolivars.”
Peter Schiff points out the situation that the U.S. economy is facing: disappointing trade balance, ultra-low interest rates, huge government debt, and stagnant economic growth. Add up these factors and we get a huge downward pressure on the U.S. dollar. The reason why the dollar remained strong is simply that troubles in other parts of the world were even worse.
“My faith is that governments and central banks will continue to run up debt and debase currencies until a crisis brings the whole experiment to a disastrous conclusion.”
When that happens, expect the U.S. dollar to collapse and gold price to shoot through the roof.