Peter Schiff, CEO and Chief Global Strategist of Euro Pacific Capital
, has long been a major presence in the precious metals industry. Our firm had the chance to sit down with Peter to discuss silver, gold, and his new fund that debuted earlier this year.
Commodity HQ (cHQ):
Investors and analysts pay a lot of attention to gold, but silver is often overshadowed. Why should investors pay attention to silver right now?
Peter Schiff (PS):
They should be paying attention to both gold and silver. They are both precious metals, and I think they are both going to benefit from the continuous inflation that is being created. This comes primarily from the Federal Reserve, but also from central banks around the world that kind of battle each other in a currency war that is really a race to the bottom to see which country can depreciate their currency the fastest. That is a great environment for alternatives to fiat currencies. Gold and silver have been real money for thousands of years, and I think they will be primary beneficiaries of the current round of quantitative easing.
Adjusted for inflation, silver is still well below its historical highs. Do you think that is significant for today’s market, or is that an unfair comparison?
It is pretty significant if you want to look at where silver has been in the past to try to figure out what is a realistic target for where it will be again; there is already a precedent for silver reaching that height. Granted, there were some extraordinary circumstances, particularly surrounding the Hunt brothers and their attempts to corner the silver market that caused silver to spike at that time. I’m sure that events will unfold as to create another opportunity for silver to revisit those inflation-adjusted highs.
Speaking of the Hunt brothers, recent years have seen a lot of accusations about manipulation in the silver market. Is this something that will hurt silver long term or just bumps in the road?
Bumps in the road. Most of the manipulation is basically the longs accusing bullion banks or other major Wall Street institutions of somehow conspiring to suppress the price of silver, maybe even involving the Federal Reserve or other central banks. I have no idea if any of that is true. To an extent, there is probably a certain amount of Wall Street aversion to metals because they believe in the paper economy and almost look at gold and silver as barbaric relics. They certainly would have a biased and self-serving interest to slight the metals, and want to sell them when they rise.
I certainly think the central bankers would prefer not to see silver and gold go up because it really is a thumbs down to their monetary policy, calling into question what they are doing. So there are certainly a lot of reasons for the Federal Reserve and Wall Street to want the price of gold and silver to go down. Whether or not they have been able to coordinate efforts to suppress it is another question. I have not seen any overwhelming evidence that suggests that is the case. It is hard to believe that a conspiracy of this nature could be kept quiet without more credible information being leaked.
Even if they were trying to suppress the price of gold and silver, how well does it work? Remember that silver prices started off below $5 an ounce and gold started well below $300. Despite the big drops from highs, we are much closer to the highs than the lows. We have had a bull market, and it is ongoing. Even if there was some type of conspiracy of efforts on the part of the mainstream to cause this last decline, and I’m not saying that it did, I think it will be short-lived and we will see new highs.
Despite any efforts by Wall Street or the government to suppress these prices, if that were the case, the market will ultimately win as it always does. As a result, I believe gold and silver are heading to new highs -- not only nominal highs, but I believe new highs adjusted for government measures of inflation.
Silver is unique in that it is both an industrial and precious metal. Do you think that mix can actually work against the commodity and that it may eventually trend towards one or the other?
I think it will maintain that mix unless the price gets so high that for monetary reasons some of the industrial uses end up fulfilled by other metals. A lot of it has to do with price. Silver is desirable for industrial uses, but at a certain point it may no longer be; there may be a substitute that may make more sense. In some cases where there are no substitutes available then it will just be used at a higher price. I do not believe that it is an either/or situation.
Certainly it can be used for both, take gold for example. Gold is used in industry as well, just not as much as silver. Gold is used in a number of cellphones, albeit a tiny amount, as well as dentistry and also gold is used as jewelry. While jewelry is not money, people still adorn themselves with gold, and they will continue to do that even if gold is $5,000 an ounce.
In the past, you have talked a lot about the collapse of fiat currencies and how it can benefit precious metals. What do you think will happen if and when paper money suffers a major crisis?
I think these paper currencies are going to have to be backed by gold. I think that right now currencies are backed by the dollar; the world is on a dollar standard. Unfortunately, the dollar is backed by nothing. You cannot back a currency with another currency if the latter currency is backed by nothing. There has to be an anchor somewhere.
At one point, the world was on the gold standard, which we left for a dollar standard. The dollar standard, however, was still a gold standard because the dollar was backed by and redeemable in gold. So we were on a gold standard globally through the dollar, but that all changed in 1971.
The world has been conducting this experiment in global fiat currency for over 40 years. Looking at the global economic imbalances that exist, it has been a complete disaster. Looking at all of the inflation that has taken place over that time period, it has been a disaster.
Yes, we have had economic progress, but we would have had much more progress and we would have a higher standard of living, both in the US and countries around the world, if for the last 40 years we had stayed on the gold standard.
If we were to revert to a gold standard, would that pressure come politically or as an economic necessity?
Economic. The politicians are never going to voluntarily go in this direction because it takes off a lot of their power. It’s the politicians that want to be on a fiat standard. They don’t want the discipline of gold. It is the public, the people that want sound money. The government wants paper money.
When we get a final collapse and everything is imploding around us and nobody has confidence in the dollar, we are going to have to try something different. I think reluctantly, politicians will be dragged kicking and screaming onto the gold standard. If the US does not adopt it, individual countries will go on it on their own. If the US wants to be involved, they’re going to have to do something, otherwise they will be left out and the dollar will be relegated to a kind of like banana republic currency.
From an investment standpoint, what do you make of the physically backed silver products on the market. Do you think these are viable outlets for maintaining precious metals exposure?
I think those are viable ways to have physical ways for people to have ownership of gold and silver. I don’t think that there is fraud going on; I believe that those entities do in fact own gold and silver. If you are worried about it, however, why take the chance? It is not difficult to buy and store physical gold and silver; you can get a lot of value in a relatively small space. At Euro Pacific Precious Metals we sell and ship metals directly to clients who store the commodities themselves. That way they do not have to worry if the metal is really there because it is physically in your possession.
You recently launched the EuroPac Gold Fund
(MUTF:EPGFX) with Adrian Day. What sets this fund apart from the gold investing space?
I launched my mutual fund family about three years ago, and I did not want to launch a gold fund then because the sector was pretty hot and the prices were high. Even though I was buying gold as a part of a diversified portfolio, I did not want to create a fund that was exclusively gold and then watch it suffer a big correction. I wanted to wait for the timing to be right.
When I launched it a little over a month ago, I think the timing had never been better and the valuations in the gold sector were as good as I have ever seen them. While there is still some downside risk, I do not think that there is a significant downside relative to the potential. So from a timing perspective, that is why I launched it when I did.
As far as what makes this gold fund different from any one of the number of gold funds that are already out there, I think it is the expertise of Adrian Day. He has been managing gold portfolios individually for clients with a minimum investment of $250,000. He has been doing that for over 20 years. I looked at his track record and I compared it to all of the publicly traded mutual funds and he was, by far, outperforming the top rated funds in the space.
I think he is an excellent stock picker; he knows the industry, he knows the business, and he can separate the good companies from the bad companies, which I think is more important than ever given today’s market environment.
His expertise is really second to none from my perspective, which is why I sought him out. Adrian did not come to me; I came to him and was so impressed with his track record that I discussed starting a fund. I suggested that he should manage more money than for just a handful of high net-worth people. Ordinary investors needed to have access to his expertise management, especially now. As a result, people can buy EPGFX with a $2,500 minimum investment. I think it is a great way for people to get into the market.
Even now, if people have gold stocks or other gold funds that they bought at higher prices, they can transfer into this fund because they can realize the tax loss by selling some of the securities they bought at a higher price. In that case it would not be a wash sale when you buy this fund, you do not have to wait 31 days. You can harvest those tax losses now, and you can move money into EPGFX. When the market rises back up you have not wasted those tax losses; you have actually crystallized them. They are there and you can use those tax losses to shelter other gains you might get from the fund or other investments as prices move back up.
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Editor's note: This article by Jared Cummans was originally published on Commodity HQ.