Schiff: Buy Gold, Commodity Stocks And China

October 13, 2010

The Fed needs to stop its easy monetary policy right away before the hyperinflation train leaves the station, says Peter Schiff.


Peter Schiff, president and chief global strategist of Euro Pacific Capital, hardly needs an introduction. He’s king of the dollar bears and a fierce critic of the Federal Reserve's loose monetary policy. All the recent talk about the Fed buying more Treasury as part of its so-called quantitative easing program aimed at keeping borrowing costs low has him more convinced than ever that the U.S. is on a clear path to inflation, possibly hyperinflation. He made clear to Managing Editor Olivier Ludwig that the more the Fed loosens monetary policy, the less it will work and the more the dollar will lose value. It all sounds dire and disturbing. But Schiff has a clear investment plan to protect investment portfolios: gold and lots of precious metals stocks, supplemented by agricultural and energy stocks and exposure to China.


Ludwig: Before this rally in gold is over, would you venture to guess how high it can go?

Schiff: I like to quote it in terms of the Dow, because you just don’t know how much inflation there’s going to be. So my target is for a relationship that’s close to 1-to-1 between gold and the Dow. I’ve had that target since the Dow was worth more than 40 ounces of gold. Right now it’s worth 8 or 8-1/2 ounces, so I think it’ll get down to 1-to-1. But you don’t know where that’s going to be. It could be Dow 5,000-gold $5,000, it could be Dow 10,000-gold $10,000; it could be Dow 20,000-gold $20,000; it could be Dow 2,000-gold $2,000. I don’t know where it’s going to be, but I think it’s going to happen.

Ludwig: Why 1-to-1?

Schiff: That was the low of the bear market of the 1930 and that was the low of the bear market of the 1970s. The Dow was worth one ounce of gold in 1932 and the Dow was worth one ounce of gold in 1980. So it seems that historically, one ounce of gold is about where the Dow goes when it’s really cheap.

But if we have hyperinflation I don’t know how much value the dollar could lose. It could lose half its value, it could lose 90 percent of its value, it could lose 99 percent of its value.

Ludwig: So how much gold should somebody own without being out of their mind at this point?

Schiff: Well I think you’d be out of your mind not to own gold. If someone told me the only thing they had was gold, I wouldn’t think they were crazy. I don’t only have gold. About 50 percent of my portfolio is in gold and silver mining stocks. That’s pretty aggressive. About 5 to 10 percent of my liquid net worth is in physical metals. So I’m a lot heavier in the actual mining companies than I am in gold because I think that they are very undervalued.

And then I have a lot of agricultural stocks and energy stocks and I have a lot of Chinese stocks. I don’t want to give up China. I think China is going to outperform gold over the long term.

I think for most Americans, gold is going to do better than stocks, and it’s certainly going to do better than bonds. And right now the agricultural commodities are doing really well. I mean look what’s happening to corn in that last couple of days – soybeans, sugar, look what cotton’s been doing.


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