Gold Just Issued a Warning the Fed Can’t Ignore

Shift Gold Friday Market Rap – Transcript Summary (February 2, 2024)

Key Concepts:

• Supreme Court Tariff Ruling: The Supreme Court upheld lower court rulings deeming Trump’s tariffs unconstitutional.
• Precious Metals Volatility: Gold and silver experienced significant volatility following the Supreme Court decision and subsequent economic data releases.
• Economic Data Weakness: Recent economic data (GDP, PCE, PMI, Consumer Confidence) indicates a weakening US economy and rising inflation.
• Federal Reserve Policy: Concerns regarding the Federal Reserve’s potential for rate cuts despite rising inflation.
• Dollar & Global Trade: Discussion of the US dollar’s role in global trade and potential consequences of a weakening dollar.
• Bitcoin Critique: Strong criticism of Bitcoin as an investment, advocating for gold and silver instead.
• Stagflation: Peter Schiff identifies the current economic situation as potentially leading to stagflation.

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I. Supreme Court Ruling & Initial Market Reaction

The Supreme Court’s 6-3 decision against Trump’s tariffs, while largely expected, was criticized by Peter Schiff as insufficiently unanimous (should have been 9-0). He argued the tariffs were unconstitutional from the outset. The initial market reaction was peculiar: gold briefly surged $50, then reversed to a slight loss, while silver’s gains were significantly diminished. This was followed by a strong rebound, with gold closing up $102/oz (near $2,100) and silver up almost $6/oz (trading at $28.45), representing gains of 2% and 7.5% respectively. The lack of similar reactions in other markets was noted.

II. Economic Data & Delayed Reaction

Prior to the Supreme Court ruling, negative economic data was released, which should have boosted gold and silver. The GDP growth rate slowed dramatically from 4.4% to 1.4% in Q4 2023, significantly below the expected 2.8%. Personal consumption also declined from 3.5% to 2.4%. Schiff anticipates a delayed reaction to this data next week, urging listeners to buy gold and silver this week. He acknowledged a previous recommendation to buy over the weekend proved incorrect (Monday offered a slightly better price), but believes this will be an exception.

III. Trump’s New Tariffs & Constitutional Concerns

Despite the ruling, Trump announced new tariffs based on a 1974 statute allowing temporary tariffs of up to 15% (he imposed 10%) in emergency situations. Schiff argues no genuine emergency exists to justify this, citing the statute’s original intent related to a dollar collapse or significant trade deficit increases. He emphasizes these are temporary measures and cannot reshape global trade. He also points out that the original tariffs generated revenue for the US government, which will now be lost, exacerbating existing deficits. The refunds of previously collected unconstitutional tariffs will further strain the budget.

IV. Inflation & Federal Reserve Policy

Recent inflation data is concerning. The Personal Consumption Expenditure (PCE) index rose 0.4% in December, annualizing to 5% – well above the Fed’s 2% target. The core PCE also rose 0.4%, annualizing to 5%, and the year-over-year core PCE is now at 3%, up from 2.8% in November. Schiff criticizes the Fed’s consideration of rate cuts given this inflationary pressure, arguing it will only worsen the situation. He believes the Fed is losing credibility. FOMC minutes revealed a split between those favoring rate cuts, those wanting to hold rates steady, and a minority considering potential rate hikes.

V. Bitcoin Critique & Precious Metals Advocacy

Schiff strongly condemns Bitcoin, urging listeners to sell it immediately. He argues that despite favorable developments (Bitcoin ETFs, institutional adoption), the price has fallen, indicating a failed investment. He contrasts Bitcoin’s volatility and potential for further decline with the stability and potential upside of gold and silver. He recommends investing in physical gold and silver through Shift Gold or T-Gold, as well as gold and silver mining stocks (GDX, GDXJ) through Europacific Asset Management (EPGIX). He believes emerging markets will benefit from a weakening dollar and recommends increasing exposure to them.

VI. Global Trade & Dollar Demise

Schiff argues that the world has been “ripping off” the US by supplying goods we cannot produce ourselves, benefiting from our inflated currency. He posits that a shift away from this dynamic, where the world no longer supports the US economy, will ultimately benefit global economies while leaving the US to face its own economic realities. He views this as a major realignment of global purchasing power.

Notable Quotes:

• “Just because the president is a Republican and you lean Republican doesn't mean you're supposed to decide a case in his favor. You're supposed to defend the Constitution.” – Peter Schiff, on the Supreme Court decision.
• “We can’t enrich ourselves by taxing ourselves.” – Peter Schiff, on the futility of tariffs.
• “The world is going to liberate itself…the liberation day is when the burden of supporting the US economy is lifted from the backs of the global economy.” – Peter Schiff, on the potential shift in global trade dynamics.
• “If you’re still holding Bitcoin, do yourself a favor and sell it this weekend.” – Peter Schiff, on his strong recommendation against Bitcoin.

Technical Terms:

• PCE (Personal Consumption Expenditure): The Federal Reserve’s preferred measure of inflation.
• Core PCE: PCE excluding volatile food and energy prices.
• GDX & GDXJ: Exchange-Traded Funds (ETFs) tracking gold mining stocks.
• FOMC: Federal Open Market Committee, the monetary policymaking body of the Federal Reserve.
• Stagflation: A situation characterized by slow economic growth and high inflation.

Conclusion:

Peter Schiff presents a pessimistic economic outlook, highlighting rising inflation, weakening economic data, and the potential for a dollar crisis. He strongly advocates for investing in gold and silver as a hedge against these risks, while vehemently criticizing Bitcoin. He believes a significant shift in global trade dynamics is underway, potentially leaving the US economy vulnerable. His core message is to prepare for economic turmoil by diversifying into precious metals and avoiding speculative assets like Bitcoin.