Peter Schiff, the one-time Senate candidate and controversial CEO of Euro Pacific Precious Metals, says gold, the Swiss franc and the Japanese yen are the preferred alternatives to the dollar. All three surged in August, yet Schiff notes the franc and the yen are being actively devalued by central banks that are "desperately and foolishly" trying to curtail appreciation.
“Looking to Europe, the Financial Times now has the awkward task of reporting that the mighty European Union currency is coming apart at the seams,” he writes in commentary released Friday. “The franc is up 5.41% against the euro this year and almost 14% against the dollar. One wonders if the only way to prevent a collapse of these major debtor currencies is to back them with Swiss-made wristwatches.”
Unfortunately, he adds, the Swiss National Bank is so afraid of the franc's rise that it has flooded the market with liquidity and cut interest rates to zero.
“The SNB even recently threatened to peg the franc to the euro,” he writes. “It's as if survivors on one of the Titanic's lifeboats were so confused and bewildered that they began tying their boat to the sinking behemoth out of a desire for a 'stable relationship.'”
Turning to Japan, Schiff notes the country has been “ironically blessed; while its debt problems are severe, they've been severe for so long that markets are willing to take that as a sign of stability.”
However, he adds that aside from the public debt problem, Japan does have “fairly impressive” fundamentals. They are still a productive economy with high personal savings and exposure to booming China.
Rumors recently surfaced that former Finance Minister (now Prime Minister) Yoshihiko Noda would "take bold actions if necessary” to restrain the yen's speculative appreciation. Schiff writes Noda “doesn't seem to understand that this is a permanent move away from dollars and euros and into anything which might be a better alternative. This is not driven by Wall Street gamblers, but rather by everyday investors seeking shelter.” Schiff discounts the notion of a double-dip recession, instead arguing “we're really in the midst of a prolonged economic depression.”
After recounting major currency patterns of the past few years, Schiff concludes, “Fortunately, gold doesn't have a central bank, so it can rise as fast as the dollar falls …That is why gold is doing so phenomenally well, and why it should continue to do so.”