Schiff: Gold Miners Ripe; Bitcoin ETF Rings Hollow

August 05, 2014 : Gold mining stocks have done very well this year. Do you like gold mining shares?
Schiff: I absolutely love them. As an investment, they've done really well. Not compared to how much they lost in the couple of years prior. If you actually look at where they are in relationship to where they've been, they've barely recouped a small fraction of what they lost in the last couple years.

So even though they had done very well, this is just the beginning. I think they've got a long way to go on the upside. In fact, there are plenty of gold stocks today, major gold companies, that are trading at prices below where they were five to 10 years ago.

You're talking about historic low valuations for gold mining companies. There probably isn't a sector more universally hated among professional investors than the mining stocks. If you look at major institutional holders of equities, the typical allocation to mining, gold mining, is zero.

You probably have more institutions that are short gold than long. So they're not on anybody's radar. Nobody owns them. The worst-case scenario is already factored in. I mean these stocks are not priced for $1,300 gold. They might even be priced for sub-$1,000 gold.

So when gold ends up going much higher, these stocks have a lot of catching up to do, because they're priced for the wrong thing. So it's going to be a big surprise. The real value is not in there. You've got sell recommendations, hold recommendations on most of these stocks.

What's going to be happening, ultimately, is they're going to come out. They're going to be beating their earnings estimates. They're going to have upgrades. There's a lot of upside to come on these stocks. There's a lot of shorts that are going to have to cover. There's a lot of buzz right now with bitcoins in the ETF industry, because there's a bitcoin ETF filing. What are your thoughts on bitcoin?
Schiff: The only thing more ridiculous than bitcoin would be the bitcoin ETF. I like the concept that we need an alternative to fiat currencies, because they're lousy and they don't work, which is true. But I don't know that bitcoin or any one of the hundreds of other digital currencies that now exist because of bitcoin are going to necessarily work any better than dollars or euros or yen. In fact, they may even be worse.

The problem is, there's no real value there. The reason I want gold to be money is gold was a commodity before it became money. Before gold was used as money, we had barter. When the concept of money was developed, people said, "What commodity can we use and just make all of our trades in this one commodity."

The commodity that was most easily used as money, and that satisfied the requirements of money best, was gold. That's why gold became money. But it was a commodity first. It was valued for its properties. Gold was desired. People wanted it because it was beautiful and scarce and had all kinds of properties. There were uses for gold. Those uses exist today.

Bitcoins don't have any value. They're not a commodity. They're just nothing. They have no more intrinsic value than dollars or euros, except they lack a legal tender status. They lack a government accepting it as payment of taxes. They don't have some of the things that give fiat currencies a use, not that they necessarily give them intrinsic value. It doesn't have a history of being accepted.

At least with dollars—not that I'm a fan of the dollar—people will accept them. You spend them. But there's only a small community of people who are going to be willing to accept bitcoins. Why do they accept them? Because they believe that somebody else will accept it.

The price of bitcoins has been falling. They're now about $570 a bitcoin, I think is the price today [7/30/14]. That's down from over $1,100 about a year ago. We're in a bear market already in bitcoin. I think it's a long way down.

Any kind of a bitcoin ETF, in my mind, is really an exit strategy for some people who are stuck with a bunch of bitcoins. They don't think there's a big enough market to sell them. So what they really want to do is shove them in an ETF and sell them on Wall Street. To me, it represents somebody's exit strategy, somebody trying to get rid of a bunch of bitcoins. So I wouldn't want to be a buyer of that ETF. Thanks for your time.

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