Peter Schiff: Outlook For Currencies, Commodities and Gold

March 27, 2009

Chief global strategist of Euro Pacific Capital considers the fate of the U.S. dollar, the outlook for gold and the best currencies for the future.
  • The dollar will collapse ... eventually
  • The USDX is going to 40
  • A golden future (with caveats)


Peter Schiff, president and chief global strategist of Euro Pacific Capital, has earned some well-deserved recognition for correctly predicting the current meltdown in the economy and the capital markets. He spoke recently about the outlook for the U.S. dollar, other foreign currencies, and gold.

[Editor's Note: A version of this interview first appeared in the Exchange-Traded Funds Report.]


ETFR: What are the best-positioned currencies?

Peter Schiff (Schiff): I like the Asian currencies, the Japanese yen and the Singapore dollar. In Europe I like the Norwegian kroner and the Swiss franc. I also like the New Zealand dollar and the Australian dollar. I also favor any currency that's pegged to the dollar, as long as it unpegs.

ETFR: Why don't you like the dollar?

Schiff: We believe the U.S. dollar is in a major long-term bear market, and as such, recommend keeping exposure to the dollar at an absolute minimum. All long-term savings and investments should be denominated in select foreign currencies against which we believe the dollar is likely to fare the worst. It's too bad, because the dollar has been a safe haven for a long time, and the world's de facto reserve currency.

People used to say "what could be safer?" That used to be when the dollar was backed by a strong, productive, export-based, savings-based economy. Problem is, that's no longer the case, and now the dollar is backed by nothing. The dollar is strong on a relative basis but it makes no sense. That's a function of people wanting to own anything, and it's an aversion to risk without regards to the actual riskiness inherent in the dollar.

ETFR: How bad will it get for the dollar?

Schiff: I believe there are two possible scenarios, both negative. Global stock prices and commodities will eventually recover but the dollar will weaken. Or, commodities go up but stocks and the dollar both weaken. Obviously the latter is a worse outcome. In either case, the dollar goes down. I see the dollar index dropping to 40 (it's now at 88), but the jury's still out if it goes much lower. It depends on if the rest of the world plays the devaluation game with us.

ETFR: How would you restore the value of the dollar?

Schiff: I would put a stop to the Federal Reserve setting artificial interest rates and printing trillions of dollars out of thin air. Instead, get the Fed out of the markets and bring back balanced budgets, low taxes and robust production.  I would also encourage people to go back to saving and producing, and to stop borrowing so much. All the borrowing further devalues the currency.

ETFR: Getting back to the currencies you like, why them?

Schiff: Because I like the fact those economies, particularly the Asian region, will economically outperform the rest of the world. Those are nations that are producing or saving the most.

ETFR: There's been a lot of speculation on the breakup of the euro. Is the euro doomed?

Schiff: Many investors, including major corporations and central banks, diversified their currency holdings into the euro. Unfortunately, the world recession is hitting Europe extremely hard, particularly the large international exporters such as Germany, and the newly capitalist countries of the former Soviet Union. The plight of Eastern Europe has widened political cracks within the European Union to the point where there is now a serious risk that the euro and even the European Union could fail.

However, if there's a breakup of the euro, it won't happen soon. The euro is definitely headed lower, relative to the yen and to gold, but it's not going to zero. And it's certainly not going to underperform the U.S. dollar. The European banking system and economy are much sounder than the U.S. Also, there's still demand from Eastern European countries who want to adopt the euro. So there may be a lot of negativity about the euro, but to me that leaves room for a surprise to the upside.

ETFR: What about the British pound?

Schiff: I think the British economy is in the worst shape of all of them, so I don't see the pound strengthening any time soon.


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