Gold and Gold Stocks are the Best Bets, says Peter Schiff
By Marc Davis
Jul 8 2009 3:49PM
www.smallcapmedia.com
Gold prices are poised for a “spectacular” and prolonged rally as the
recession deepens and investors finally become disillusioned with the U.S.
dollar. So says renowned Wall Street financial forecaster and economist
Peter Schiff, who loudly warned of the October 2008 stock market crash and
accompanying recession as far back as 2006.
Since the global economic meltdown, the president of the Connecticut-based
investment firm Euro Pacific Capital has struck a chord with rattled
investors who have lost faith in America’s bedrock financial
institutions. Hence, his well-received television media blitz in recent
months has focused on extolling the virtues of owning gold bullion or gold
equities, as well as urging Americans to get out of U.S. denominated
investment assets.
In a recent on-camera interview with BNW Business News Wire, Schiff
suggests that the looming prospect of a hyper-inflationary environment in
the U.S. will severely debase the greenback over the next few years. And
the global investment community will realize that gold represents the
ultimate “store of value” as a safe haven replacement for a discredited
U.S. dollar.Hence, gold bullion and gold-related investments, such as gold
equities, will prove to be the best way to shield one’s money from the
ravages of a protracted and severe inflationary environment, Schiff says.
“If you really want to grow your wealth, you should own gold in the
mining sector,” he adds, while also suggesting that gold equities
(companies that are already in production) offer the greatest leverage to
rising gold prices.“With gold stocks, there’s obviously a lot of
leverage to higher gold prices. As millions or billions of people discover
gold as a store of value and as a way to escape inflation, there’s going
to be tremendous demand and somebody’s going to have to supply that
demand. It’s obviously going to have to be mined,” he says. “So the
companies that have gold and mine it are going to see profit margins
explode.”
This extraordinary scenario will be accentuated by two key developments,
Schiff says. One of them concerns the fact that burgeoning demand for gold
will continue to outstrip annual global output. In fact, world gold
production has been steadily declining since it peaked in 2001 in spite of
a nearly U.S. $600 rise in gold’s price since then.“Mines are not as
productive as they used to be. Supply is very constrained. So if we get a
big increase in demand, there are really no significant new gold deposits
that are going to come on-stream any time soon. So the companies that are
already producing are simply going to be able to get a lot more money for
the ounces that they pull out of the ground,” he adds.
The other key consideration is an inevitable return to the ‘Gold
Standard’ as a way for the world’s central banks to attach a meaningful
valuation to each of their country’s currencies, Schiff says. “The only
solution to the economic problems that we have today is a return to sound
money… The world is ultimately going to have to move away from the
‘Dollar Standard’ and back their currencies with something real. I
think gold is the best thing to use. Gold has been money for 5,000
years,” he adds.
“When we go back to a real monetary standard…you’re talking about
billions of people who don’t own any gold right now who will. Where’s
the gold going to come from? It’s going to get mined.”
"So obviously, in order for the world to go back to a Gold Standard, given
how much paper money the U.S. government has printed, gold prices are going
to have to be up in the stratosphere to make it work,” he declares.“I
think that gold is going to go to many thousands of dollars an ounce. I’m
not exactly sure how high but I think it will be a spectacular run.”
Hence, gold producers will be big beneficiaries of the paradox that the
noble metal is gradually reverting back to its traditional role as a
last-resort hedge against economic turmoil and political crises at a time
when underground supplies are beginning to dry up.
This suggests that gold stocks will be counter-cyclical investment
stand-outs for the next few years, Schiff says. Against a grim backdrop of
painful and pronounced economic contraction in North America, gold miners
will literally have a license to print money. “This is one sector that we
can be very optimistic about because gold companies are going to be in the
business of producing money. That’s going to be the money that people
want. Not what the central banks are printing, but what gold mines are
producing. That’s going to function as money,” he adds.
Yet, even though most gold producers are already experiencing impressive
year-on-year earnings growth that promises to dramatically accelerate over
the next few years, their lustrous prospects have yet to win over the
mainstream investment community, Schiff says. “I think a lot of the gold
stock prices don’t reflect how high gold prices are going to go and what
that’s going to mean to the profitability of these companies. I don’t
think that this is appreciated by the market,” he adds.
Indeed, small to mid-sized gold mining stocks are still being overlooked by
most investors for their trend-bucking tremendous growth potential, Schiff
says. Additionally, most of these gilded equities have been over-sold since
the onset of the recession and can still be acquired at bargain basement
prices. “Most stocks are significantly below what they were (in 2007),
even though the price of gold is higher and the cost of mining is lower,”
he says.“And I think that the price of gold is going to keep rising
faster than the price of producing it. And so gold companies are going to
remain very profitable.”
Meanwhile, the next major up-leg in what Schiff refers to as the early
stages of a secular bull market for gold is not far off, he says. It has
merely been delayed by an unexpected and unsustainable rally in the U.S.
dollar in recent months. One that has been caused by global deleveraging
and by the false sense of security that investors gain from moving their
money into U.S. treasury bills in a time of crisis, says Schiff.“One of
the reasons that gold isn’t stronger is because of this temporary
strength of the dollar. This is keeping the gold market in check. And the
dollar is getting some of the safe haven money that should be going into
gold,” he says.
“At some point that will stop. The people who are buying dollars will
realize that there’s no safety in dollars. Because the central banks are
going to try to pay for the economic bailouts and stimuli by looting the
world’s savings and by printing money and debasing it.”
“So, if you want to escape that, you hold gold, which is something that
the government cannot debase,” he concludes.
DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of GoldIRAS.com. Past performance of any investment is no guarantee of future performance. All investments have risk.
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