On Wednesday, Congress finally agreed on a government stimulus/bailout plan to battle the economic impacts of coronavirus to the tune of over $2 trillion. Meanwhile, the Federal Reserve has committed to monetize the debt with QE to infinity. Practically speaking, we’re talking about trillions of dollars being injected into the US economy – all of those dollars created out of thin air.
So, what does all of the money creation and government spending mean for gold?
Peter Schiff said that with the central bank and government response to the coronavirus, hyperinflation has gone from being the worst-case scenario to the most likely scenario. If that comes to pass, gold will go through the stratosphere.
Right now, the demand for dollars and dollar-denominated assets is high. But how long will that last once the printing press gets fired up?
“What the Federal Reserve has basically told the world is if you’re an owner of US Treasury bonds, you need to sell them to us because we’re going to buy the entire bond market,” Peter said in an interview with Fox Business.
In a podcast earlier this week, Peter said he thinks people will eventually start dumping dollars.
Nobody can hold dollars. Nobody can hold any bonds denominated in dollars. This is now like a game of musical chairs where nobody wants to get caught with dollars when the music stops playing.”
And when that happens, what will they buy?
What else are they going to do? I mean, what are they going to use as an asset? They’re not going to just swap dollars for euros or swap dollars for yen. They’re going to just buy gold.”
Everybody knows the Federal Reserve is about to flood the world with dollars. It is talking about “unlimited QE.”
The price of gold fell sharply as the stock market sold off over the last few weeks. This led some people to question gold as a safe-haven. But a drop in the price of gold during a stock market selloff isn’t unusual. In fact, it mirrors gold’s performance in 2008.
The price of gold actually dropped a lot more steeply during the 2008 meltdown then it has in the midst of the coronavirus stock market selloff. The price of the yellow metal dropped 29.5% between March 2008 and November 2008. Silver’s crash during that time was even worse. It lost 57.6% in seven months. Then both metals started to recover as all the quantitative easing and monetary stimulus kicked in. Over the next three years, between 2008 and 2011, gold gained 166%. And silver increased by a staggering 448.4%.
So, if you look at the performance of gold and silver in the midst of this crash compared to ’08, the metals are doing quite well. At the lowest point, gold was only down about 2% on the year.
Gold surged as the Fed’s QE announcement sank in. And if history is any indication, it will push even higher as the monetary and fiscal stimulus begin to surge through the pipeline.
“Gold is acting in this financial crisis the way it acted in the last financial crisis. Except gold is much stronger in this crisis.” Peter said.
The sale of physical gold has gone through the roof. SchiffGold has had to implement minimum orders and is warning that shipments could be delayed.
It’s going to be a rush to buy gold because everybody knows the dollar’s cooked now. Or if they don’t know it, they’re going to figure it out. Because what the Fed just did guarantees the destruction of the dollar. Because it means everybody who owns dollar-denominated debt, whatever kind of debt it is, is going to be giving it to the Federal Reserve for sale.”