Peter Schiff, the CEO of Pacific Euro Capital, was recently on CNBC talking about gold. Schiff is considered a contrarian in many ways. He turned out to be right about the housing bubble when many were calling him crazy at the time.
Schiff has been a bull on gold and very bearish on the dollar, two positions that have so far not come to fruition over the last 5 years. But with the recent rise in gold prices this year, Schiff could still find vindication with these predictions.
Schiff gets headlines because he has said that gold will eventually rise to $5,000 per ounce. But this isn’t an outlandish prediction unless you put a timeframe on it. It would be crazy to think that gold would go up to $5,000 in the next year or two. If that happens, that will be a scary world indeed.
On the other hand, it is very realistic to think gold could go to $5,000 in the next 10 years. It would only have to go up four-fold from where it is now. Gold did exactly that (and more) within a 10-year period starting around 2001.
On the flip side, Goldman Sachs has been predicting that gold would fall below $1,000. This prediction was not far from becoming reality in 2015. But a lot has changed since then, with gold now standing above the $1,200 mark.
What hasn’t changed much is the predictions coming from Goldman Sachs. Just last month, the company maintained its bearish stance on gold.
Goldman Sachs is the face of the establishment in the financial industry. If you ever want to become Treasury Secretary, you should go through your orientation at Goldman Sachs first.
When Schiff appeared on CNBC, he said that the Wall Street firms – and Goldman Sachs in particular – are wrong on their bearish calls on gold.
Schiff said, “They’re still wedded to the old narrative. They still expect the Fed to raise rates three times this year. They still believe in this phony recovery. They still think the dollar is going to go up, and they’re wrong.” He said that Goldman Sachs is just as wrong now about its bearish calls on gold as it was last year.
Don’t Bet Against Either
Schiff has a tendency to get things right, but in an untimely manner. He is usually early on his calls, and it takes a little while for his predictions to come true.
On the other side is Goldman Sachs, which will only mildly question the status quo of central banking and deficit spending, if ever. A bearish call on gold falls in line with its favoritism towards central bank inflation. This may not sound right at first, but if the price of gold stays down, then fewer people will question the Fed’s policies of low interest rates and monetary inflation. If gold prices go down, it is something of a green light for the Fed to inflate more.
With that said, it is also tough to bet against Goldman Sachs. Even though it favors the status quo, the company’s personnel aren’t going to take bets on positions that they know will lose.
Of course, we don’t always know what the company is really betting on. They could be calling for lower gold prices while still investing in it.
I think the most likely scenario is that the higher-ups at Goldman really do see gold falling in the short run. If we hit an economic downturn, they could turn out to be right.
If we hit a recession that is anything close to 2008, then we should expect gold to fall as it did then. Then again, this time really could be different. As we saw in early 2016, gold went up in the face of falling stocks.
Investments, including gold, never go straight up or down. It wouldn’t surprise me if gold has another pullback before its next big run. We can’t predict the future, but this may be what Goldman is betting on.
If gold pulls back, maybe this will be an opportunity for Goldman to get into a heavier gold position. It may have missed the previous train that left the station.
Call me a conspiracist, but is it possible that Goldman is purposely making negative calls on gold in an attempt to push down prices to where it can buy some? Since they may have missed the last train, they are trying to get that train to come back to the station.
And if the Fed eventually decides to start another round of quantitative easing (money creation), then this will likely push gold higher. At that point, Peter Schiff will probably be proven correct on his bullish stance on gold.
Gold probably won’t hit $5,000 in the next run up, but crazier things have happened too.
Either way, you don’t have to bet against either at this point. You can own some gold and withstand a pullback. And if gold ultimately goes on a huge run, you will want to own some mining stocks to give you some leverage.
If gold ever goes anywhere close to $5,000 within the next decade, then gold mining stocks are going to the moon.
