In the same category

Ditching Before The Fiscal Cliff

IMG Auteur
Published : December 07th, 2012
952 words - Reading time : 2 - 3 minutes
( 13 votes, 4.7/5 )
Print article
  Article Comments Comment this article Rating All Articles  
Our Newsletter...
Category : Editorials





Turn on the TV and this is what you'll hear: The US budget is heading for a fiscal cliff. If a deal isn't reaching in Congress by the end of this year, a combination of automatic tax hikes and budget cuts will sink America into economic depression. There is no escape.

Of course, my readers know that the fiscal cliff is merely an example of the piper having to be paid. The problem isn't the bill, but that we ran it up so high in the first place. Any deal to avoid the cliff by borrowing even more money may allow the piper to keep playing a while longer, but when the music finally stops, the next fiscal cliff will be that much larger.

My readers also know that there are several ways for investors to avoid the cliff altogether. Perhaps the most secure is buying precious metals. However, given what we know, it may seem confusing that the spot prices of gold and silver have been moving sideways.

However, these headline prices have largely concealed a more important indicator: physical bullion sales are booming.

An Under-the-Radar Rally

The figures are astounding. For US Gold Eagle coins, mint sales are up some 150% from the QE3 announcement on September 13th. Despite what the spot prices show, there has been a tremendous surge in people buying physical gold.

But why hasn't this translated into higher spot prices?

It seems clear that the spot prices of both gold and silver are being driven right now by a large pool of institutional capital moving into and out of instruments like commodity ETFs. The movements have been predictable: When there is a sign of a deal coming out of Washington, the spot prices move up. If negotiations are faltering, there is instead a major selloff.

Physical bullion investors are a different breed. We are in this market for the long haul. When I increase my physical gold and silver holdings, I do it because I see the long-term fundamental picture for the US getting worse.

Getting a Read on the Bullion Bull

While the ETF speculators are trying to anticipate the market's - and each other's - immediate reaction to whatever 11th hour deal is struck, I believe physical bullion investors are sending a clear signal: this whole debate is out of order.

A J.P. Morgan study concluded that 82% of the hit to GDP if we go over the fiscal cliff would be related to tax increases, not spending cuts. And if the legislators reach a deal? It will only result in more tax increases and much fewer spending cuts. These guys just don't get it.

Looking back to the debt ceiling debate of August 2011, we saw big movements into physical gold there as well. What investors are concluding as they hear these grand debates is that whatever the result, the budget, the dollar, and the taxpayer will lose.

They are deciding to get off this runaway train. Because the real fiscal cliff isn't coming on December 31st - it is coming when there is a global flight from the US dollar.

The Real Fiscal Cliff

The Democrats are complaining that the fiscal cliff imposes too steep demands on those who receive entitlements. Republicans are trying to protect the military budget. What no one seems to want to address is what happens as foreign creditors increasingly decide to stop financing this bonanza.

To a large extent, this is already happening. China has already become a net-seller of Treasuries and is diverting more of its reserves into gold. The Chinese government recently approved banks holding gold as a reserve asset and made it easier for banks to trade gold amongst themselves.

While Japan and other Keynes-drunk governments have filled some of the gap with increased purchases, a supermajority of new issues are being bought directly by the Fed. That was the idea behind QE3 Plus, as described in
last month's commentary.

Because of the acute trauma in Europe and certain institutional mandates to hold Treasuries, much of this new inflation is being absorbed. This has caused what may be the most dangerous of situations. It has allowed the inflationists to paint people like me as the boy who cried wolf. It seems to them that no matter how irresponsible Congress and the Fed are, we are immune from economic consequences.

In reality, all this money printing is like pulling back a spring. Pent up inflationary forces are building, and when they are unleashed, the debate will be over faster than they can say "oops."

The Only Way to Win Is Not to Play

Those buying into physical gold and silver see this inevitability and are getting prepared. We believe there is no sense playing Russian roulette with our savings. Every time Washington raises that debt ceiling or announces another stimulus, it's like one more click of the trigger.

When the global markets finally wrap their heads around the scale of US insolvency, the response will be as fierce as it is rapid. In such a once-in-a-century scenario, physical gold and silver are among the few assets without counterparty risk. From the looks of the physical bullion sales charts, I'm not the only investor who has figured this out.

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, John Browne, and other Euro Pacific commentators delivered to your inbox every Monday!

And be sure to order a copy of Peter Schiff's recently released NY Times Best Seller, The Real Crash: America's Coming Bankruptcy - How to Save Yourself and Your Country.



Data and Statistics for these countries : China | Japan | All
Gold and Silver Prices for these countries : China | Japan | All
<< Previous article
Rate : Average note :4.7 (13 votes)
>> Next article
Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for nineteen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services. Mr. Schiff holds NASD Series 4,7,24,27,53,55, & 63 licenses.
WebsiteSubscribe to his services
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
Stephen Hawking – Doomsday Prophet’s Top Five Predictions
19 MarThemis0
Stephen Hawking may have been brilliant in his own sphere of science. This does not necessarily equip him to make accurate pronouncements about ot...
Stephen Hawking – Doomsday Prophet’s Top Five Predictions
17 MarWatchdoctor2
In my opinion, yet another NASA actor promoting ''leaving the earth'' as a viable alternative to living in peace with our neighbours. Not even sure...
Drums Along the Potomac
18 MarThemis1
While I, too, don't give a hoot about the Skripals, the UK cannot tolerate foreign agents running amok and potentially endangering innocent British...
School Daze
15 MarJ.
@bfsiedel, While I agree with much of what you posted, regarding whether or not school is broken depends upon one's expectations of public school....
School Daze
12 Marbfsiegel1
The part that I find troubling in these conversations, regardless of perspective, is how much they revolve around the extremes. i.e. situations and...
School Daze
12 Marbfsiegel1
The part that I find troubling in these conversations, regardless of perspective, is how much they revolve around the extremes. i.e. situations and...
End Times at the OD Corral
08 Marprljr1
After all; ALL the POWERS ~ The Banksters, The Pentagon, Wall Street, The Israelis, The Oil Companies and the Quasi Rich ~ are getting EVERYTHING t...
Gold $10,000? Goldnomics Podcast Quotations and Transcript
07 MarS W.
So you swap your dollars for gold in the hope that it will go to 10,000 and then you swap your gold back and have more dollars. In the end you ...
Most commented articlesFavoritesMore...
World PM Newsflow