Peter Schiff Launches Gold Mining Mutual Fund Amid “Greatest Buying Opportunity During The Entire Bull Market”

During a time in which mining companies are truly hated by investors globally, the outspoken market commentator and CEO of Euro Pacific Capital, Peter Schiff, indicates that this is the best time to be launching a mutual fund with exposure to the sector.

Peter discussed this concept in detail, along with general market thoughts, in an interview with Bull Market Thinking’s Tekoa Da Silva. Here is that conversation.  

Tekoa Da Silva: Peter, we saw conflicting talk this week from the Fed regarding the tapering of QE but yet the accommodative policy remains the same. Do you feel that Ben Bernanke and the Fed have painted themselves into a corner in terms of the ongoing administration of QE?

Peter Schiff: Well, it’s more than just a corner; they’re between a rock and a hard place. There’s nothing they can do. They’ve checked into the Roach Motel of monetary policies because they can get in but there’s no way to get out.

So what they do is they just bluff. They just pretend there is an exit strategy knowing that exit is impossible. So they just have to maintain the pretense as long as they can before the market figures out the true predicament that they’re in.

So right now they talk about tapering…[but] if the economy is strong enough for tapering, why wait four months? Why wait six months? Why not just do it?

It’s kind of like the guy who is overweight and he constantly tells you he’s going to go on a diet but he’s going to start next month. Why not just start right now? It’s easy to talk about something you’re going to do in the future, but what’s hard, is actually doing something in the present.

No matter what Ben Bernanke says, between now and the time that he’s supposed to taper, he will come up with an excuse as to why he can’t, and I think that he already knows this. But he can’t let the market know that the whole recovery that he’s bragging to have created is merely a temporary byproduct of the QE, and that the minute you remove the QE--we’re right back in recession.

In fact we will be in an [even] bigger recession than the one that the QE got us out of because we had to take on even more debt. So all we did is exacerbate the problems that caused the last recession. So the next recession will be even worse because we will have even bigger problems to deal with.

TD: Peter, you’ve been one of the only people in the world beginning in the early 2000s to speak out in terms of what the Fed has been doing, in terms of creating these asset bubbles. Has it surprised you how long this has been going on? Because the ultimate “bubble” still hasn’t popped yet.  

PS: Yeah. I was a big critic of Alan Greenspan back in 2001 and 2002. I criticized them in the late 90’s for inflating the NASDAQ bubble and the stock market bubble. But my criticism was much greater based on his reaction to that bubble after it burst and the reckless monetary policy he pursued. I recognized the dangers early on, in 02’ and 03’. I saw the housing bubble. I saw the distortions that it was creating in the economy. I saw the great risks to the financial markets, to the banks that he was oblivious to, and so I knew the financial crisis was coming.

Unfortunately, the government responded to the crisis by doing everything wrong and in so doing, they have exacerbated all of the underlying problems that led me to conclude that the crisis was inevitable. But I am surprised looking back at how many years we’ve been able to get away with it and how big we’ve been able to make the problem. But that’s very unfortunate because since this problem is now so enormous, the pain associated with resolving the imbalances is going to be that much greater than had we dealt with it sooner.

So it’s not a good thing that we’ve been able to postpone the inevitable for so long. People are optimistic that this recovery that has eluded us for four or five years is finally on the horizon.

I think the result of that, is people are doing foolish things. People are spending money they should be saving. They’re borrowing when they shouldn’t be and I think we’re taking on debts that we can’t really afford, much the way we did during the housing bubble, and of course when reality rears its ugly head--it’s going to be an even bigger problem this time around.

TD: Peter, in terms of the equity market itself, what are you telling your clients in terms of maybe them not wanting to miss the move? Are you recommending people step out of the way before it collapses?

PS: I think the dollar is going to collapse before the market does. The Fed is propping up asset prices by debasing the dollar--the currency with which those asset prices are denominated.

So if you’re going to destroy your currency, then asset prices are not going to collapse. But what I’m concerned about is not the nominal asset price but [rather] adjusted for inflation. Another way you can look at it is expressed in gold.

I think that stock and real estate prices expressed in gold are going to go down significantly over time. I know we’ve had a rally in asset prices in terms of gold recently (with the selloff in gold), but I think that’s very temporary.

In fact, we are launching the Euro Pacific Gold Fund which is my first ever gold mining mutual fund and that’s going to open to the public this week. I’m timing that to coincide with what I believe to be the greatest buying opportunity that I’ve seen during the entire bull market in gold stocks.

Even though gold prices are substantially off their lows, gold prices are still three times higher than they were a decade ago. [But] many gold stocks are actually priced even lower than they were a decade ago.

So you got the opportunity to roll back the clock to the time where gold was under $300 and buy the gold stocks. I think they’re giving these stocks away. In fact…the sentiment has probably never been this bad. We’ve had a big collapse in price. Nobody wants to buy these stocks and so this is when I’m launching my fund.

Gold stocks ironically are the victims of inflation because inflation has dramatically increased the cost of mining but the price of what they’re mining, gold, has not gone up as fast as the cost of mining it because everybody is convinced there is no inflation.

They believed the propaganda from the central banks and governments and so gold has not even gone up to reflect the increased cost of mining it. So I think it is really undervalued right now. That makes it difficult for the gold mining sector but I think eventually these difficulties are going to lead to tremendous opportunities because a lot of gold mining companies are going to go out of business.

A lot of companies are going to dramatically reduce their capacity, their CAPEX, their R&D and that means when gold demand really comes back in the future (I think gold demand is going to explode), there’s not going to be a lot of gold supply. So I think the price of gold is going to skyrocket and then the miners are going to literally be gold mines. Right now they’re not but I think eventually they will be.

TD: Peter, what about physical gold ownership, what are your thoughts there?

PS: I have always recommended that people have physical gold, not just mining stocks but physical gold. I think right now mining stocks are extremely inexpensive historically relative to physical gold. So it’s an opportunity to be more focused on that sector right now but I don’t think people should abandon physical gold.

I think it’s important when people buy bullion to make sure they’re not getting ripped off on so-called numismatic or collectible coins. That’s the biggest scam going on a lot of the gold companies that advertise heavily on cable news and on the internet. They are really ripping people off with horrific markups--30%, 40%, 50% to 100% markups.

TD: One last question Peter. How do you maintain faith or belief in a concept that people can’t see, that hasn’t materialized yet? You seem to have been able to do this all throughout your career.

PS: The majority is always going to be wrong. Generally you’ve got crowd mentality. The mob has such a vested interest in believing in a fantasy, that they can’t reject it. They can’t second guess their assumptions in light of evidence that would seemingly prove them wrong.

So I think that those of us who [actually look at the numbers]--we know how this game is going to end. We know where the puzzle pieces need to be and we just have to position ourselves accordingly and tune out all the noise. Assets will be re-priced. The fundamentals are going to win out in the end regardless of how far they deviate from those fundamentals during these periods of mania where so many people are captivated by a phony idea.

TD: Peter Schiff, CEO and Chief Global Strategist of Euro Pacific Capital. Thank you so much for sharing your comments.

PS: Sure. Thanks for giving me the time.

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, an SEC-Registered Investment Adviser and a full service broker/dealer. He is one of the few widely known economists and investment professionals to have spoken about the financial crisis before it began. As a result of his commentary on the U.S. stock market, economy, real estate, the mortgage meltdown, credit crunch, subprime debacle, commodities, gold and the dollar, he is becoming increasingly more renowned. He is a widely followed opponent of debt-fueled growth policies and known for his advocacy for emerging market and commodity-focused investments in countries with positive fiscal characteristics.

Mr. Schiff has been quoted hundreds of times in leading news outlets around the world, including The Wall Street Journal, Barron's, Die Zeit, Tokyo Shinbun, South China Morning Post, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, and The Washington Post. He regularly appears on CNBC, CNN, The BBC, Al Jazeera, Fox News, and Fox Business Network. His best-selling book, "Crash Proof: How to Profit from the Coming Economic Collapse" was published by Wiley & Sons in February of 2007. His fourth book, “The Real Crash – America’s Coming Bankruptcy” was published by St. Martin’s Press in May of 2012. He is the host of the Peter Schiff Show a daily syndicated talk radio show that is broadcast online and from terrestrial stations coast to coast.