Gold bug Schiff counters Goldman on first drop since 2000

‘Gold Standard’

Schiff began his radio show, which he calls “the gold standard in talk radio,” in 2010, around the time of his failed run for the Republican nomination for U.S. Senate from Connecticut. He finished third with 23% of the votes, behind Linda McMahon and Rob Simmons.

On Oct. 18, the day after the U.S. would have defaulted had lawmakers failed to reach a deal on the debt limit, he came downstairs to the studio wearing a blue Hugo Boss polo shirt and jeans. Soon he was talking gold. It was down less than 1% on the day, and 24% in the past 12 months.

“Thank God we got so many stupid people that don’t understand the value of gold because that means that people who do understand are able to buy it at a low price,” Schiff said into the microphone. “Don’t necessarily get mad, get in on it.”

Jeff Currie, the head of commodities research at New York-based Goldman Sachs, said at an Oct. 8 conference in London that gold would fall after lawmakers reached a deal on the U.S. debt limit. Schiff went on CNBC Europe to say Goldman Sachs had it backward: Allowing more government debt would push gold higher.

Bernanke Puzzled

Currie declined to comment through a spokeswoman. Gold, which closed at $1,316.20 an ounce on Nov. 1, will decline to $1,050 by the end of 2014 as the U.S. economy improves, the dollar strengthens and the Fed reduces its bond-buying program, Goldman Sachs analysts said in an Oct. 18 report.

“Nobody really understands gold prices and I don’t pretend to really understand them either,” Fed Chairman Ben S. Bernanke told the Senate Banking Committee in July. Other central banks kept expanding reserves after gold peaked in 2011, losing $545 billion in value.

Assumptions like Currie’s on why investors have lost faith in gold as a store of value are false, according to Schiff. The economy is only growing because of government spending, so debt continues to swell, he said.

Radio Advice

To hold interest rates low, the Fed will have to keep buying bonds, which means printing more dollars, Schiff said. Foreign countries use them to buy U.S. bonds -- in effect lending the U.S. more money to pay back what’s already owed. Governments such as China eventually will balk, Schiff said.

“The minute China tells America, ‘I want my money back, I don’t want to loan it you again, just give me the money,’ then we default,” Schiff said on the radio. “The sooner the Chinese do this the sooner we can start fixing our economy, because the longer they wait, the bigger our problems get.”

Schiff’s listeners call in wanting to know how to prepare. Mike from St. Lucia asked about a $1 trillion treasure allegedly hidden in a New Mexico mountain, that if found would make a dent in the national debt. “We don’t have that much time” to discuss such theories, Schiff said.

Ellen from New York asked whether to save pennies minted prior to 1982 because the copper is worth more than one cent. “Can’t-lose investment,” Schiff replied. Luke from Cincinnati asked if he should spend his $5,000 savings on gold or silver, bought through Schiff’s company. “I like both metals,” the host said.

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