Answering Peter Schiff on gold

AP Photo/Newmont Mining

(MoneyWatch) Recently, Peter Schiff, CEO of EuroPacific Precious Metals, wrote a response to a post I made warning investors about the potential problems with jumping in on gold based on economic forecasters. Specifically, he took issue with what I said about economic forecasters and about gold in general.

In short, I stand by what I wrote earlier regarding both. My opinion, based on the academic evidence, have been made clear in previous posts, and nothing in Schiff's response has caused me to doubt the evidence. Today, I'd like to address a few of Schiff's arguments.

I did make an error in quoting him saying gold would hit $2,300 by 2014. He was quoted in the article that made that forecast. However, in 2008 Schiff predicted that gold would hit $2,000 by 2009 and $5,000 by 2013.

Next, Schiff stated that I said that I don't recall any forecasters advising clients to invest in gold at the lows prior to 2003." What I actually said is quite different: "Prior to 2003, when gold was under $300 an ounce, I don't recall any investors asking if they should include an allocation to gold in their investment plan." I made no mention of what forecasters were saying, just that I wasn't getting any questions about buying gold at that time from investors. I'm sure there were forecasters that recommended buying gold in 2003 when it was around $300 per ounce, just as I'm sure there were forecasters who recommended buying gold in 1980 when it was at $850 or in 1995 when it was at $300 or in 2008 when it was at $900. There's almost always someone recommending gold or any other investment in the hope that they'll be right and become the next big guru. Even blind squirrels do occasionally find acorns.

Responding to my statement that "there are no good forecasters, just overconfident ones," Schiff stated: "Perhaps he simply hasn't met a good forecaster." Let's address this in two parts. First, the statement about there being no good forecasters isn't based on my opinion. It's based on academic research into the subject. For those interested in the subject of forecasting, I highly recommend Philip Tetlock's "Expert Political Judgment," William Sherden's "The Fortune Sellers," or a recent look at the records of individual forecasters by CXO Advisory Group.

As to my not meeting any good forecasters: First, I have been lucky enough in my career to have spent time with many of our country's top economists, including some from the Federal Reserve, some from the leading investment banking firms, and others from academia.

More to the point, I found a Web site tracking some of Schiff's predictions. Of the 17 predictions the site has reviewed, five turned out to be correct, 10 turned out to be wrong, and they gave an incomplete grade to two:

I may not be impartial, but it doesn't looks like either of these predictions came true, giving him five correct predictions out of 17.

I'll leave it to you to decide if Schiff is a good forecaster, as he claims: "On that measure, I feel comfortable calling myself a good forecaster, as well as a confident one."

As I said in my column, I don't make stock market, interest rate or gold forecasts, because the evidence suggests that there aren't any good forecasters. If you don't want to take my advice on the subject, how about Warren Buffett's? He advised against paying attention to such forecasts because they tell more about the person making the prediction than about the market. 

It's also worth noting that I don't have any problem with including gold in a long-term portfolio. As I said in the post: "If gold fits into your long-term plan and you can handle the periods when gold stalls or falls, gold might merit a small allocation." I also noted that personally I prefer an allocation to a broader commodity index (such as the DJ-UBS).

Finally, Schiff added this comment: "Noncommittal 'advice' conveniently allows advisors to have it both ways ... it is worthless to investors." There's nothing non-committal about my advice. It's just that Schiff and I have very different views on what investors should focus on. Schiff wants you to focus on things you can't control, such as returns. Instead, I want you to focus on things you can control: the amount of risk you take, the level of diversification you have, the costs you pay and the tax efficiency of your portfolio. That's playing the winner's game in both life and investing.

[miguelgg]

vIt's no secret that Schiff has a company that sells metals to investors (Europac Precious Metals); so he personally benefits by telling people to buy gold:
On one side, he says: "The end is coming! Buy gold!"
On the other, he says: "I sell gold"
What strikes me is that if he's so certain that gold is such a great investment, he continues to get rid of it! Not only that, he's selling it in exchange of dollars! The very thing that he's been saying will collapse. Wouldn't it be cheaper for him if he just kept his gold for himself and become billionaire?
Oh, or maybe he's so rich now that he feels like he doesn't need more wealth, so he's selling his gold to benefit "others".
Yes, that's maybe why he does it. It's all love to his fellow citizens.

[Relentless87]

Peter Schiff knows what he is talking about. He has a knack for pointing out what is obviously flawed, like the housing market. Before you reply to that, tell me what happens when interest rates rise? AND THEY WILL.

[Relentless87]

Peter Schiff knows what he is talking about. He has a knack for pointing out what is obviously flawed, like the housing market. Before you reply to that, tell me what happens when interest rates rise? AND THEY WILL.

[att0m]

Thank you Larry, for yet another sober opinion about investments. Diversified, low-cost, conservative and smart.

[LarryswedroeCBS]

jackson
It isn't that Schiff isn't presenting a cogent and logical argument. It's that it doesn't matter. There are just no good forecasters, as the evidence shows, including Schiff's own record.

Just consider the following from the chief economist of Goldman Sachs, Jan Hatzius. Now you don't get to be chief economist of Goldman unless you are a pretty smart guy, probably a lot better economist than Schiff. So here is what he had to say about the ability to forecast: " "Nobody has a clue. It's hugely difficult to forecast the business cycle. Understanding an organism as complex as the economy is very hard."
Source: Nate, Silver, "The Signal and the Noise," p.184.

[-mirv-]

Apparently you have a very short memory. Goldman Sachs accepted TARP payments and was one of the heaviest users of the emergency liquidity loan facilities offered by the Fed in 2008. Goldman may have profited hugely from the GFC, but only because they offloaded their subprime debt before the collapse. They are a guilty party as much as any other. Goldman Sachs is very good at making itself more wealthy and everyone else less so. Their investment advice only serves their shareholder interest and nobody elses. They will openly and blatently lie and pilfer their way towards more and more profit, and will never accept responsibility for the damage they cause in their wake. Jan Hatzius does indeed have a clue, and Goldman had a clue before the GFC. You won't find anyone from Goldman having warned the rest of the world about the GFC, even though they were probably the company that most profited from it. Peter Schiff warned the rest of the world, even in the face of ridicule, about the GFC, and nobody can take that away from him.

[Jackson537]

I thought Schiff's response to you was thoughtful and spoke of pressing issues in our economy and government that support his position. This one just kind of 3rd grade bickering.

Good Luck bro!

[MarkHass]

Well said. Schiff's a joke. Has been for years. I think we can leave it at that.

[matjen1]

This really says it all. http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html