Wall Street Bigwigs: The Fed's shift could lead to a big mistake, gold could "break through the sky"

Since the Federal Reserve began raising interest rates in March 2022 to combat inflation, investors have been trying to address two key questions: whether these measures can effectively stabilize prices and when the Fed might change its strategy.

Recent developments have made the situation clearer. At the Jackson Hole Economic Symposium held last week, Fed Chair Powell stated that "inflation has significantly declined" and indicated a policy shift. "The timing and pace of rate cuts will depend on upcoming data, evolving outlook, and risk balance," he said.

While lower interest rates generally stimulate economic growth and inspire investors, doubts still persist.

Peter Schiff, Chief Economist and Global Strategist at Euro Pacific Asset Management, expressed great concern about the Fed's upcoming policy shift. In a recent article published on X, he warned, "If you think inflation is bad when the Fed claims to be fighting it, wait to see how bad inflation will get after this false fight ends."

Schiff's concerns extend beyond inflation to the potential risks facing the US dollar and the broader economy.

Dollar Crisis?

Schiff studied the US Dollar Index, which measures the value of the dollar against a basket of foreign currencies including the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc.

Established in 1973 with a base value of 100, the index reached a high of 164 in 1985 and a low of around 70 in 2008. Recently, the index has fallen following Powell's speech hinting at a policy shift.

On August 23, the US Dollar Index closed at 100.67. Schiff pointed out, "It will easily fall below 90 by the end of the year, challenging the low point of 2020."

Such predictions of dollar devaluation could have wide-ranging effects. A weaker dollar typically makes US exports cheaper and more competitive overseas, potentially boosting US manufacturing and exports.

However, it also makes imported goods more expensive, exacerbating domestic inflation by increasing the cost of foreign goods and services.

Looking ahead, Schiff predicts the trend of dollar devaluation will continue until 2025. He said, "I believe the dollar will hit rock bottom in 2025, triggering a dollar crisis, economic collapse, soaring consumer prices, and long-term interest rates."

Schiff did not provide more details in the article, but a rapid devaluation of the dollar could undermine international confidence in the US currency as a store of value and medium of exchange. The resulting economic turmoil could also impact the US economy, increasing the cost of repaying dollar debts, especially for foreign borrowers.

Is the Fed Wrong?

Schiff's pessimistic forecast for the dollar leads him to lean towards choosing gold as an alternative store of value.

In another article on August 23, he wrote, "Gold rose today, closing above $2500 for the second consecutive week," while the US Dollar Index fell to its lowest point in 13 months He interprets this trend as evidence of the unwise policy shift by the Federal Reserve. He believes, "This clearly confirms that the Fed's pivot is a mistake."

Shiff has always believed that the battle against inflation is far from over. With the Fed signaling a shift, his conviction has grown stronger, and he expects inflation to rise further.

He predicts that the value relationship between the US dollar and gold will continue to be inversely related, stating, "Rising inflation and falling interest rates mean the dollar will plummet to the bottom, while gold will soar to the sky."

Traditionally, gold is considered a hedge against inflation because it is a tangible asset unaffected by monetary policy, unlike fiat currencies that can depreciate due to expanding supply. Recently, this precious metal has garnered widespread investor attention, with its price surging by 23% in 2024 compared to the previous year.

Shiff is not only conducting theoretical research but also investing according to his beliefs. The latest 13F filing from Europe Pacific Asset Management Company shows that precious metals are given significant importance in Shiff's investment strategy.

As of July 30th, the largest holdings of Europe Pacific Asset Management Company are in gold mining company Agnico Eagle Mines (AEM) and the second-largest holding is in Barrick Gold Corporation (ABX), another heavyweight player in the gold mining industry