Silver’s a Good Buy in the Low 30s, says Peter Schiff

Schiff puts his money where his mouth is

As silver consolidates from its near-triple bull run to almost $50 on May 2 from last year’s July low of approximately $17.50, Peter Schiff said he believes silver represents a good buy in the low 30s.

Speaking to Eric King of King World News, the Europacific Capital president and author of several financial books told KWN that U.S. sovereign debt is the “grandaddy of all sovereign credit problems, credit problems and our crisis is going to be too big to hide beneath a bailout or to kick down the road.”

As an Anglo-American institution established in 1945 to oversee the global financial system, the International Monetary Fund (IMF) has been an integral part of negotiations and sources of funding for many member nations under financial duress.  As a means for smaller nations to access debt financing, the IMF has been involved in the vast majority of emergency loans throughout the world.

But when large member states become insolvent, analysts wonder what will happen then.

Greece’s GDP of $330 billion is akin to the total production of the U.S. state of Maryland.  Other EU members under financial stress, Portugal and Ireland, weigh in at approximately slender $230 billion a piece.  Those are relatively small potatoes when compared with Spain’s $1.5 billion and Italy’s $2.1 billion, respectively.  Many analysts have little doubt that if traders take Italian or Spain 10-year bonds to rates of more than 10%, the end of the euro in its present form is near.

But Schiff is looking far ahead.  He believes the euro is already on the slippery slope to a breakup, and has set his sights further down the road to the U.S. dollar and the zero chance of a bailout from a dollar crisis.

“The IMF is not going to step in with loans to the United States government,” said Schiff.  “The IMF is getting its money from the U.S., and of course we are getting our money from China.  So when we fail, there is no way out.”

To put the U.S. fiscal deficit in prospective: presently, the yearly U.S. budget shortfall per year is more than the entire GDP of Spain.  So when the music stops in the U.S. Treasury market, the yearly fiscal deficits could skyrocket more than the unprecedented $1.6 trillion deficit slated for fiscal 2012, which would then create a Greek-style negative feedback loop to “fiat currency graveyard,” as James Turk of Goldmoney likes to put it.

“We’re [U.S.] going to have the same problems as Greece,” added Schiff.  “The reason that Greece can’t pay its bills is that interest rates are rising and the Greeks don’t have the money.  Well, the same thing is going to happen in America.  When interest rates eventually rise, we can’t afford to pay because we’ve borrowed so much … and unless we can find new buyers of our debt, we’re going to have to default.”

What would happen to the price of silver and gold under that scenario?  Schiff, a big proponent of the precious metals since the early 2000s, said prices will move “straight up,” stressing to investors that the time to buy the metals is “before that atmosphere” comes upon us, not during the crisis.

His advice for silver aficionados is to stay the course through the volatile price swings in the metal and buy at discounts from recent highs, which today calculates to approximately a 33 percent discount.  In the Monday morning trade in New York, silver trades at $34.01.

“I think anything in the low $30s represents a pretty good entry point for people to buy … Once we go through $50 … I see silver going to $200 an ounce,” concluded Schiff.  “I own a lot of silver personally because of that outlook.”

Jim Rogers: I did buy some Silver this Week

Speaking with India business news channel, ET Now, Jim Rogers of Rogers Holdings said he’s buying silver at current levels.  On Friday, Rogers told ET Now that he recently bought silver last week.

“I did buy some silver this week, but if they go down, I hope I will buy more,” he said.

Many investors wanting the white metal in their portfolio have been gun shy throughout the volatile period following the correction during May.  Given his reputation as a man who has traded commodities successfully for more than 30 years, Rogers’ comment on Friday may embolden some investors back into the silver market.

Additionally, signs of strength in the silver futures market chain, which shows the front-month trading at a price level near the prices at the back months, coinciding with Rogers’ sentiment on silver at this time .  As of 9:31 a.m. EST Monday, the July contract stood at $35.57, while the Dec. 2015 contract traded at $35.58.

When asked to provide a synopsis of his portfolio to viewers, Rogers said, “I am long commodities and I am long currencies. I have sold short emerging market stocks, and I have sold short technology stocks. I have sold short bonds in the U.S., and I have sold short a large bank in the U.S.”

And when asked about his thoughts on the likely reaction in the markets post QE2, Rogers doesn’t believe that the U.S. Fed will allow the economy and markets to implode into a deflationary collapse as was the case in the 1930s.  He expects the Fed to prop up asset prices.

And for a good reason, too.

Fed Chairman Ben Bernanke is well-known for having become an expert on the central banking policies as well as the politics during the Great Depression, and had famously vowed in a speech at economist Milton Friedman’s 90th birthday in 2002 that the Fed would not standby and watch the U.S. economy sink into another depression if a threat emerged.

“I would like to say to Milton and Anna [Schwartz, Friedman's coauthor]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again,” Bernanke said at Friedman’s birthday party, referring to the Friedman’s [also Schwartz's] theory that the mistaken policies of the Fed to allow money supply to contract was the primary cause of the protracted high level of unemployment during the Great Depression.

Within that context, Rogers has repeatedly warned investors of a coming tsunami of more money from the Fed at the first sign of any meaningful threat to the prospects of an economic recovery.  And Rogers hasn’t budged from his position regarding the Fed’s next move if/when confronted with more disappointing economic statistics, such as the May 3rd jobs report. He appears more assured than ever of a Fed announcement regarding further stimulus measures now that the U.S. is entering a presidential election cycle.

“Things are slowing down and if you stop printing so much money, things I hope would slow down some more,” said Rogers.  “The problem is we have an election in the U.S. in 2012, and they are going to come back and start printing money again. They may call it something else, but they will come back and print more money. This is not good for the world, but that’s all they know to do.”

The silver price could soar once again on even a rumor of an announcement from the Fed of some form of a QE3.