Peter Schiff: Message to Gold & Silver Investors

For those losing sleep over the recent three-day plunge in gold prices, signaling an abrupt change in the fundamentals for bullion’s bull market rally, Euro Pacific Capital’s Peter Schiff said, not only have the fundamentals not changed, they’ve grown “stronger than ever!”

In his Sept. 26 Schiff Report, he stated, “In fact, the recent price declines simply adds further support for, I believe, the decision to buy gold and silver.”

Schiff echoes sentiments of $10 billion Sprott Asset Manager’s Eric Sprott, who recently reported on King World News that his firm had been stripped clean of every once of physical silver in his vaults—ranging from small orders for 10-ounce bars to multimillion dollar orders from very wealthy individuals and institution buyers.

Schiff, who’s been recommending bullion for more than a decade, said severe drops in gold and silver are mere par for the course, and that new investors should not get discouraged by these massive drops, but should, instead, buy more metal if they’re in position to do so.  And for those believing the train has left the station without you, Schiff said, it “has turned around and come back, giving you a chance to get on board.”

Harkening back to the Lehman collapse and subsequent financial crisis, which centered on the U.S., gold and silver prices plunged into a death spiral—along with stocks, commodities and overseas currencies.  Gold plunged more than 35% from its recent high, at that time, of more than $1,000 per ounce, to as low as $680.  Silver, on the other hand, got a glimpse of an end-of-the-world scenario when its price fell from more than $20 to $8.50 in days—a nearly 60% decline from the previous high.

But as we know, gold prices went on to reach new highs, nearly trebling from its crash low of 2009 to then trade as high as $1,930 as late as a few weeks ago, while the silver price soared during that same time period to a nearly six-bagger price of $49.85—all within only 26 months.

So, as long as Marc Faber’s most pessimistic of his calls (as well as John Taylor’s call) for the gold price reaching, possibly, $1,000 per ounce, this most recent swan dive drop in the metals is child’s play in comparison.

“There is an old expression in the stock market, that bull markets take the stairs up, but the elevator down,” Schiff continued.  But the precious metals’ decline this time didn’t take the elevator down, “they just fell down the shaft.”

From greed to fear, the bull market has twisted, said Schiff.  Others may tell you, we told you so; we warned you, but Schiff said to expect such comments, pointing out that such talk creates fear and doubt.  “That’s what builds a bull market; it’s built on fear; it climbs that proverbial Wall of Worry.”

So what created the big drop in prices?  Schiff said leveraged speculators were “being forced to sell.”  Stops were triggered and margin calls were raised, creating a virtuous cycle of more and more sellers, triggering more and more stops, and creating panic among the weak holders.  On the other hand, physical buyers don’t have the problems of brokers asking for more money to hold positions, he said.

“I think the catalyst that started this sell off was the announcement by Ben Bernanke that the U.S. economy faced even more significant downside risks than he believed,” Schiff explained. “Well, the reason why we’re buying our gold and silver is precisely because the U.S. economy is much worse than the Fed chairman believes, or would readily admit.”

Schiff suggested that acknowledgment by the Fed of the terrible fundamentals in the U.S. economy means “more government stimulus; it means more money printing, more quantitative easing.”

Schiff believes Bernanke is playing coy with markets—for now, and with an election coming up Helicopter Ben will come to the rescue once again.  “At the end of the day, Bernanke will do the only thing he knows, which is to print more money.”

“That’s why we’re buying gold.”

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