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Peter Schiff predicts DOW either 1400 or Gold $12,000 an ounce

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February 28, 2011 – Comments (35)

Just caught Fast Money right now and Peter Schiff happened to be on.  While I was with him a little bit about the concerns over commodity prices, dollar and future inflation, he then has to go and make a wacky prediction. He predicts that within 1-3 years the DOW will be worth 1 ounce of gold.  So, as of this moment DOW will hit 1400ish, or gold $12,000ish an ounce.

He's starting to remind me of Alstry.

35 Comments – Post Your Own

#1) On February 28, 2011 at 5:41 PM, ElCid16 (98.15) wrote:

http://www.economicnoise.com/2009/11/11/stocks-down-about-80-from-peak/

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#2) On February 28, 2011 at 5:46 PM, SN3165 (< 20) wrote:

u mean 14,000? 1400 would be nuts. 

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#3) On February 28, 2011 at 6:04 PM, awallejr (82.75) wrote:

Nope he meant 1400, or gold 12,000/ounce, either/or

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#4) On February 28, 2011 at 6:38 PM, lquadland10 (< 20) wrote:

Giggling. I like it when he went and called them Fast Money fools.

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#5) On February 28, 2011 at 6:38 PM, kdakota630 (29.89) wrote:

He's been saying that gold and the Dow would hit a 1:1 ratio for years now.

And it wouldn't necessary be Dow 1,400 or gold at $12,000/oz, it could be anywhere in between as well much like ElCid16's link states.

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#6) On February 28, 2011 at 7:37 PM, motleyanimal (93.95) wrote:

I have concluded that most of the gloom and doomers are either unmedicated bipolars or alcoholics or both.

 

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#7) On February 28, 2011 at 7:59 PM, goldminingXpert (29.82) wrote:

That's an absurd prediction.

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#8) On February 28, 2011 at 9:17 PM, awallejr (82.75) wrote:

kdakota630

You are right it could be any equal number, but to get to that equal number would mean one or both of them has/have to make a dramatic move up or down  from current prices.  Since he is bullish gold that would mean either gold going up dramatically from these prices or the market dropping dramatically.  He did say DOW 1400, which got the Fast Money crew to roll their eyes.

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#9) On February 28, 2011 at 9:20 PM, whereaminow (56.98) wrote:

What was his time frame on the $12,000/oz prediction?

David in Qatar 

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#10) On February 28, 2011 at 9:21 PM, whereaminow (56.98) wrote:

Nevermind, somehow I missed "1-3 years".

David in Qatar 

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#11) On February 28, 2011 at 9:22 PM, SN3165 (< 20) wrote:

yeah dow 1400 is a little out there. I've been following Schiff for a while and you really can't call the guy a lunatic. He knows his stuff. His book Crash Proof is a good read. and everybody knows about "peter schiff was right" youtube video. But dow 1400? Gold and Dow 1:1 is very possible, though, and it certainly won't be 1400/1400, more likely 7k/7 or 9k/9k? 

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#12) On February 28, 2011 at 9:24 PM, SN3165 (< 20) wrote:

And did anyone see the video where Robert Kiyosaki predicts $6,000 silver?? (Though he didn't give a time frame. He could have meant in the year 3050 :-)

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#13) On February 28, 2011 at 9:24 PM, EnigmaDude (98.07) wrote:

I watched The Taking of Pelham 123 last night, and that was basically the motive behind the taking of the train and hostages.  Cause the stock market to crash and gold to skyrocket in a matter of hours due to NY terrorist attack.  Pretty far-fetched, but I guess it could happen...

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#14) On February 28, 2011 at 9:46 PM, ChrisGraley (30.35) wrote:

OK, I said the same thing a couple of times before and got the same reaction as Schiff did.

The thing is that most people look at the 2 extremes and don't look at a meeting in the middle where gold goes up and the market goes down.

People forget that both the market and gold get distorted in both good times and bad and a single ounce of gold has been able to buy the Dow before.

BTW, if you ever run into a 1:1 gold/dow ratio, sell all the gold that you have and buy stocks. It's a rare occurance that will make you wealthy. When it takes 25 ounces of gold or more, sell every stock that you have and put it all in gold.

Both swing back and forth wildly. Take advantage of both extremes. 

 

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#15) On February 28, 2011 at 10:03 PM, Valyooo (99.65) wrote:

Schiff...what a nub!

Chris, exactly...I am glad you see it that way.  I think (could be wrong) that if that 1:1 parity was reached, Schiff would start saying "the Dow is headed to 45 and gold is headed to $125,000 / oz"

So, I thank you for being one of the more level headed people on this subject.

BTW, did you catch that awesome spike in GPL today?  I know me and my best friend did.

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#16) On March 01, 2011 at 12:09 AM, checklist34 (99.73) wrote:

valy ... yes, thast the problem with super-bears.  When their predictions come true, they just make even more bearish ones.

if you are ever bored, read the backlog of articles at comstockfunds.com

They are obviously bright, as essentially every economic malady experienced by man in the last 10 years they have been out ahead of...  They predicted a huge secular bear market in like 1999, they predicted the S&P could fall by half, housing bust, financial crisis, and in the fall of 2008 they predicted that stocks would drop under 1000.  (this is all from memory, but close) when the S&P hit like 900 they called it fair valued, and then predicted 800.  At 800 they predicted it could go under 700.  

never turned bullish, never would have.  at 600 they'd have predicted 500, 500 they'd have asked for 400.  the opposite is equally the folly of permabulls in booming markets.   I had a friend make literally 7x his money from 1997 to 1999, and then wind up with a 10% loss when it was all said and done.  At 4000 he predicted nasdaq 5000, at 5000 he predicted 6000.  When it started to drift down he predicted if Bush won it'd be 6000.  Margined up in 2001, curtains...

My very first post ever on any fool related board was in December of 2008 expressing my excitement about being able to buy into an obvious opportunity, and told that story, and likened the current situation to the opposite of that.  

anyway, Schiff is an example of a falsehood/hyperbole drenched commentator, in my view, and I cannot even somewhat take him seriously.  

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#17) On March 01, 2011 at 12:22 AM, checklist34 (99.73) wrote:

i'll go double or onthing on drinks for an entire casino that on the very slim chance that gold and the dow meet (barring threatening war or something) 51%+ of gold bugs stay bullish on gold and bearish on stocks. This time it will be different, this time its way worse, etc. 

Chris's mention above may... but my memory isn't perfect... be the first mention I have seen by a gold-guy/gal of an exit strategy.  I have always been curious what the exit strategy for gold folks is.  

I will offer a thought ont he likelihood of this occuring, in pointed form for easy reply

A)  when gold and the DOW met or approached each other in the depression we had a gold standard and the biggest market crash of all time.  86%.  Beyond that we had economic conditions so bad they are unlikely to be approached today SIMPLY because the depression featured the "dust belt" droughts and no FDIC insurance.  That one hit 2.0 according to "fred" (see link below).

B)  the second time this occured we had one of the greatest bubbles of all time in anything in gold, and were concluding one the 2nd biggest bear market of the 20th century.  That would be the only time that the DOW and gold met (again according to "fred").  So it is not reasonable to say "bear markets typically bottom when the DOW and gold meet", as I have read numerous times.  Feel free, anybody, to offer up different data from "fred"

C)  over time stocks outperform inflation, and gold has only matched it (with considerable volatility and fits and starts).  Therefore the distance between the price of gold and the DOW, both priced "fairly" has grown considerably over time.   If stocks beat inflation by, say, 3% on average (about right) for the headline number, and gold (with enormous fits and surges and flops) matches it, we naturally get an ever-widening gap between that two that would require an ever-less-likely fantastic outlier event to close.  Follow me?  In another 100 years this would require gold at 20x its historical average of $1 adjusted for inflation and stocks at 1/20th or something crazy like that.  FOR THIS REASON, the gold guys are not betting WITH history, but boldly against it when they predict things like this.  They are betting on either (or both) of record setting bubble in gold or record setting crash in stocks.  

Here is the link to "fred" and hispage on the matter: 

http://home.earthlink.net/~intelligentbear/com-dow-au.htm

point C above is the most important one I could possibly make on this subject.  Thats why the lines in Fred's chart are sloping upward.  Thats why parity would take a truly fantastically outlier event and is NOT supported by history.  

Remember, the 1980 gold bubble was even more spectacular than the 2000 Nasdaq bubble.  AND it coincided with the end (and near bottom) of one of a great bear market.  

 

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#18) On March 01, 2011 at 12:27 AM, checklist34 (99.73) wrote:

similarly, due to C above, the 25 ratio will be a moving target (upwardly mobile) over time as well, on the other side of the thing. 

Its a great concept - the flopping between commodities and equities - a GREAT concept.  Proven over and over and over throughout history to be true alpha.  (I blogged about this once, see here: 

http://caps.fool.com/Blogs/where-are-we-in-the-commodity/343838

Its not my blog thats good, it really isn't.  Its the article upon which it was based.  It explains all of history and our current situation better than anything else I have ever seen.  I am not aware of a link to it on the web.  

But the target isn't parity of gold to dow unless you are betting that events this time will be more dramatic than the 1980 gold bubble (by alot) and/or a more dramatic crash...  To bet on parity is not a bet on history, it is a bet on something much more dramatic than history has ever offerd before.

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#19) On March 01, 2011 at 12:57 AM, checklist34 (99.73) wrote:

back to freds chart and my point C...

in the late 20's we had a dow/gold peak of 18

then 27 about 35 years later

then 43 about 35 years after that

50% higher each time.  upwardly mobile target.  I DO NOT DISPUTE THE THEORY, it is fantastical and more, and I am all about betting on history repeating itself, but to bet on 1:1 for historical reasons is plain wrong.  

we had 2:1 in the 30s, we had 1:1 in the mega-bubble in the early 80s (please accept that bubble for the mega  bubble that it was.  It drives me nuts when people say gold is still cheap because it isn't, adjusted for inflation, as high as it was then.  Would the NASDAQ be cheap at 4500?  It still wouldn't maybe be as high as it was in 2000, adjusted for inflation).  

Going with the tops rising by about 50% each time, and the approximately 35-36 year increment between tops, we could expect one of about 60:1 by 2025.  Thats a whole lot of gold dropping and a whole lot of stocks rallying.  

I think porte and I both, by different paths, estimated S&P 2500-3000 in 2025.  Assume that his calculations are smarter.  

gold at 5-600 in 14 years?  eesh.  

But anyway, this whole predicting a bottom and dow/gold ratio is further complicated by the gold standard years.  In the 30's we had the ratio bottom on the biggest market crash of all time.  In the early 80s we had a fantastical gold bubble combined with severely depressed stocks.  

I boldly predict:  we don't even approach 1:1 this time around.  There just wouldn't be anything resembling historical precedent for an event like that.  (see C above).  

But where would it bottom if the pattern held?  Not sure that can be divined from the data on the table and "freds" chart.  The tops in that chart show a pattern, the bottoms just don't.  

 

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#20) On March 01, 2011 at 1:04 AM, checklist34 (99.73) wrote:

Going with "freds" lower trendline, assuming a cyclic bear market in a couple years this would predict a ratio of maybe 5-6:1

freds bottom line now is over 4:1.

if we get a mega bubble in gold, a big parabolic blowoff, ...  that could bring the ratio lower for sure.  we haven't really had a parabolic move in gold on a long term logarithmic chart.  But will we?  Or have we learned a bit from history?  And the tulipesque parabolic move in 1980 maybe won't be repeated in gold?

I got nothing, but I will get down on my knees and beg my gold loving fellow CAPsters not to sit around waiting for 1:1, unless someone has reasont o believe that "Freds" chart is wildly faulty.

 

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#21) On March 01, 2011 at 1:14 AM, checklist34 (99.73) wrote:

I suppose nobody will read these, but...

http://seekingalpha.com/article/224930-dow-gold-ratio-approaching-20-year-lows

There we go again, upwardly mobile ratio.  check it out.  I was right.  I had not seen any of these charts before making my point C above...  

see here:  

http://2.bp.blogspot.com/_sy2qqBjcPIg/SJcVGLmMnGI/AAAAAAAAAr0/k6OBCsZuL1o/s1600-h/DOW-Gold+Ratio1800+to+Now.php

stocksb eat inflation, gold doesn't, so over time this ratio must drift up...

the early 80's gold bubble was a true outlier event that should not be used for historical reference anymore than the nasdaq bubble...

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#22) On March 01, 2011 at 1:15 AM, checklist34 (99.73) wrote:

not that extreme outlier events can't happen, but... 

to get anywhere near 1:1 would require one of those infomercial / scam website / zero hedge doomsday scenarios to play out.  

its betting on a black swan, holding out for 1:1, not on history.

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#23) On March 01, 2011 at 1:27 AM, awallejr (82.75) wrote:

Schiff is an example of a falsehood/hyperbole drenched commentator, in my view, and I cannot even somewhat take him seriously.  

Except that he was actually making good points during his appearance and then crashed his credibility with that DOW 1400 call.

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#24) On March 01, 2011 at 1:31 AM, checklist34 (99.73) wrote:

awall, he does from time to time throw out a point that seems valid for a second... 

but then usually tanks his credibility by going off the sane bus.  

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#25) On March 01, 2011 at 1:39 AM, checklist34 (99.73) wrote:

first he said madoff was credible and therefore his statement that the US gov't was a ponzi scheme was accurate, because madoff would know

then he blamed all of the worlds inflation on the US (chinas epic building boom, record levels of commodity speculation, etc.)

stated that inflation was proved by rising commodity prices, an emminently debatable point.  In fact, inflationistas on this site argued last summer that falling commodity prices weren't deflation...

Thats why I can't follow this guy.  He is just emminently willing to drift away from fact, and to state as fact things that aren't.

 

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#26) On March 01, 2011 at 1:51 AM, ChrisGraley (30.35) wrote:

Valyooo (97.96) wrote 

BTW, did you catch that awesome spike in GPL today?  I know me and my best friend did.

GPL is a good long term stock, but it's got another week or two and then it will stagnant for a couple of months. I'm really happy to invest in this stock before it caught up with reality.

  checklist34 (99.80) wrote:

 

i'll go double or onthing on drinks for an entire casino that on the very slim chance that gold and the dow meet (barring threatening war or something) 51%+ of gold bugs stay bullish on gold and bearish on stocks. This time it will be different, this time its way worse, etc. 

Chris's mention above may... but my memory isn't perfect... be the first mention I have seen by a gold-guy/gal of an exit strategy.  I have always been curious what the exit strategy for gold folks is.  

I think you are selling the gold bugs short here checklist. I know for a fact that Sinch has talked about an exit strategy several times. Same for binve. 

I've talked about one too, but I always seem to back-track from it because my government always seems to want to make money worthless. 

 

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#27) On March 01, 2011 at 2:01 AM, checklist34 (99.73) wrote:

Chris, I noted "that I can remember", which would mean I would have read it.  I haven't read it, as far sa I can remember.  I don't generally click on Sinch's threads, not because he's not the smartest coolest guy ever, but because the 5 or 10 I have clicked on hav ealways been super pro-precious metals, and I sipmly have no interest in that.  Except to one day bet against it, but thats not going to happen today.

I stand by my bet:  I bet when the top comes, "fewer" that have yelled buy over the last 2 years yell sell than yell "hold" or "buy more".  It'll be hard to count.

Of all the stuff I posted above, rleated to gold, that was the only part that was interesting at all?

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#28) On March 01, 2011 at 2:32 AM, Valyooo (99.65) wrote:

Chris, why do you think it will stagnate?  I think it will, because silver tends to peak around march and then is weak until later in the year...what is your reasoning?  Is it different or the same?

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#29) On March 01, 2011 at 8:10 AM, ChrisGraley (30.35) wrote:

It's just come too far to fast Valyooo.

It's still a good long term investment. It just needs a correction.

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#30) On March 01, 2011 at 9:23 AM, ChrisGraley (30.35) wrote:

 checklist34 (99.80) wrote:

Of all the stuff I posted above, rleated to gold, that was the only part that was interesting at all?

yeah, pretty much.

You are starting to become like Alstry.  Look above where you posted like 5 replies in a row. You are starting to like the sound of your own voice over what you are actually saying.

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#31) On March 01, 2011 at 12:29 PM, checklist34 (99.73) wrote:

Chris, I thought I was just posting up some numbers and an observation about history.  :)

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#32) On March 01, 2011 at 1:31 PM, JakilaTheHun (99.94) wrote:

Schiff has a terrible track record as an investment manager.  He's either a politician or a demogogue; I don't think he can be taken seriously as an investor.

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#33) On March 01, 2011 at 2:10 PM, silverminer (31.52) wrote:

I echo comments #11 and #14.

Checklist, The time to discuss exit strategies will come. I spent the last few years just trying to encourage Fools to acquire exposure to the sector. The fact that I have not yet focused upon discussing exit strategies does not mean I / we don't have one.

I think I've stated elsewhere that by the time we reach my conservative targets of $50 silver and $2,000 gold, I intend to have already removed at least my initial investment capital from the sector (not hard to do when most equity holdings in the sector will have multiplied several times over). Just as ChrisGraley alluded to, I can't wait for the opportunity eventually to transfer my gains from gold and silver into blue chips and the like.

When those targets are approached, I will reasess depending upon macroeconomic conditions how much of my winnings to leave on the table, as informed by metrics like that very same Dow:Gold ratio, the Silver:Gold ratio, pm assets as a % of total investment capital, -- as well as developments in the currency and bond markets, geoplitical landscape, etc., etc. etc. I suspect I may leave a fair portion of my winnings in silver for the run to $100 or beyond.

It may not be cast in stone at this early stage, but it is nonetheless the foundation for a safe and reasonable exit strategy.

 

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#34) On March 01, 2011 at 2:35 PM, awallejr (82.75) wrote:

Well Schiff did start out making good points about concerns over inflation, but I still maintain that rising non-PM commodities is more of a supply and demand issue.  And rising PM commodities is becoming possibly the new safe haven play.  Oil, at the moment, is just reacting to potential supply disruption concerns in the Middle East, although over the decades it will continue to rise.

But the US economy is still fragile.  If you raise interest rates to simmer inflation you will put the breaks on any recovery here.  And with unemployment where it is that would not be a good thing to do.  But for Schiff to suggest that this rise in world inflation is central bank induced, I disagree.  Rising inflation in emerging markets is a result of those markets finally trying to get their population out of poverty and into a more middle class structure.  That means demand for commodities with worldwide competition for them.

As for any exit strategy I think it is too early to tell.  But if we are ever at a 1:1 ratio like Schiff predicted, I can only imagine that to happen under a true doomsday scenario because the moves by either asset would be too dramatic without any major catalyst.

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#35) On March 01, 2011 at 5:30 PM, leohaas (37.12) wrote:

The only justification for the 1:1 ratio is: "But this time it is different: the world as we know it is about to end." So only permabears can believe in it. Or the idealists who are wishing fiat currencies away.

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