Warren Buffett famously counseled investors to ignore all forecasters. To demonstrate the wisdom of that advice, and with gold now having dropped below $1,100 an ounce, it’s an excellent time to turn our attention to Peter Schiff and his market predictions. A notorious doomsayer and regular guest of the financial media, Schiff’s forecasts often focus on gold prices.
The Story So Far
On July 16, 2012, Schiff, CEO and Chief Global Strategist at Euro Pacific Capital, said he expected gold to reach at least $5,000 an ounce. Gold had closed the prior day at $1,590 an ounce. Schiff asserted that, with central banks keeping monetary policy loose, gold was likely to spike thousands of dollars higher.
And while Schiff didn’t give an exact date when he saw gold hitting that $5,000-an-ounce mark, his forecast did look pretty good for a short period. Gold rose to close at about $1,792 on October 4 of that year. However, it has been in steep decline since. As I mentioned previously, on July 20, 2015, a little more than three years following Schiff’s forecast, gold closed below $1,100 (a drop of over 30 percent) for the first time since March 2010, more than five years ago.
Despite the fact that the Federal Reserve still has not tightened domestic monetary policy, and European and Asian banks have actually loosened their monetary policies, we have experienced neither the inflation Schiff predicted nor the rise in gold prices he was forecasting.
Not the First Bear-Call On Gold
It’s important to observe here that 2012 wasn’t the first time Schiff had made such a forecast regarding gold. In 2008, he predicted that gold would hit $2,000 by 2009 and $5,000 by 2013.
In June 2013, Schiff appeared on CNBC, which called him one of their “favorite guests,” and offered this: “Gold can certainly make a move up to $1,700 or $1,800, but I think ultimately it’s going a lot higher than that.” He added: “When the world figures out the position that we’re in, gold is going to the moon.” He further stated that while gold was off its high, “it’s not going a lot lower.” At the time, gold was $1,374.
Schiff has been wrong not only regarding gold, but also about inflation. Keep in mind the Fed has been unable to get inflation to increase and remain above its target of about 2 percent. Given how persistently wrong he has been for such an extended period, one can only wonder why anyone would still care what Schiff has to say. I’m pretty sure Warren Buffett doesn’t care what Schiff, or for that matter any other market “guru,” is forecasting. And if he doesn’t, why should you?
Fortunately, we have more evidence on Schiff’s ability to accurately forecast the direction of the financial markets. The website Wall Street Economists is published by the Economic Predictions Research Project (EPRP), an academic nonprofit research group.
The project was created to track economic forecasts about the financial crisis of 2008-2009. Among those tracked were Nouriel Roubini and Peter Schiff. The project was completed in 2012. Researchers found that of the 17 predictions made by Schiff that they reviewed, five turned out to be correct, 10 turned out to be wrong and two received an incomplete grade:
- One was a video titled “We Probably Won’t Make It To 2012." In it, Schiff predicted that if the economy didn’t collapse in 2011, certainly would by 2012, and so would the dollar.
- The other was a December 2010 interview with CNBC in which Schiff said that the U.S. markets would crash like dominos because so many things were bound to happen in 2011.
Neither of those two forecasts came true, giving Schiff five correct predictions out of 17. While .294 is a pretty good average for a baseball player, I doubt you’d want to be investing based on that type of track record.
It’s worth noting that Schiff did accurately predict in 2006 and again in 2007 that the U.S. economy would not be strong, that the housing market would crash and that we would have high unemployment.” However, an article from U.S. News & World Report analyzing Schiff’s forecasts about the crisis also found 12 ways Schiff was wrong in 2008:
- Wrong about hyperinflation
- Wrong about the dollar
- Wrong about commodities except for gold
- Wrong about foreign currencies except for the Yen
- Wrong about foreign equities
- Wrong in timing
- Wrong in risk management
- Wrong in buy-and-hold thesis
- Wrong on decoupling
- Wrong on China
- Wrong on U.S. treasuries
- Wrong on interest rates, both foreign and domestic
Blips in Forecasting Accuracy
Unfortunately, you don’t hear much from the financial media about the historical evidence on forecasting accuracy because, as I have noted before, accountability would ruin the game and investors just might stop tuning in.
After all, the conclusion reached by the research project on Schiff’s forecasting record was: “If you followed Peter Schiff’s advice about the housing bubble and gold you could have made a [of] lot money or at least saved yourself a lot of losses. On the other hand if you followed his other predictions you would have lost a lot of money. According to some of Schiff’s own clients, portfolios invested with Schiff were down anywhere from 40-70%.”
But because Schiff’s forecasts have often focused on gold prices, I thought it would also be worthwhile to take a look at some of the beliefs commonly held about gold. More on that will be coming next week.