Unlike the "legitimate bull markets" of many foreign markets, Peter Schiff believes the U.S. is merely experiencing a "rally in a bear market," and is lagging the rest of the world "for a reason."

The worst is not over, according to Euro Pacific Capital's Schiff, who predicts the Dow will fall another 90% from current levels when measured against gold.

A longtime dollar bear and gold bull, he foresees gold hitting $5000 per ounce "in the next couple of years," and predicts the Dow and gold will trade on a one-to-one ratio vs. the current level of around 9.7-to-1.

Schiff believes gold is currently "climbing a wall of worry" but will eventually become as hot as tech stocks in 1999 and start moving up $100 per day.

Schiff's forecast is based on his view the U.S. dollar is going to collapse under the weight of our massive deficit and reckless policies of the Obama administration, which he compares to the massive spending programs of the 1960s, which paved the way for gold's ascent in the 1970s. "Obama is making the same mistakes as Bush, but he's doing them on a grander scale," says Schiff, who is running for U.S. Senate in Connecticut as a Republican.

In addition to gold, Schiff remains bullish on Asia, most notably China. His firm recently launched the Euro Pacific Halter China fund, and Schiff believes "there's a lot of value" in China and thinks the renminbi could "double or triple" when it's depegged from the dollar.

That will make Chinese assets more valuable when measured in dollars, he says.

Schiff presciently called the bursting of the debt bubble and subsequent rout in financial assets, and his current forecasts may very well come to fruition. But Schiff's confidence that the rest of the world (notably Asia) will prosper as the dollar loses its reserve status and America's economy collapses seems dubious, at best.

Then again, Schiff is nothing if not (supremely) confident.

Gold and silver took an unexpected upward jump, probably triggered by Chinese TV telling 1.3 billion Chinese people to invest in gold and silver, which they could buy from their local bank. This resulted in an orgy of metals buying from the local banks and accounts for the upward jump.

Gold and silver have been profitable but modest performers over the last year or two, probably because inflation is a big trigger for gold and silver, and society is not entranced with deflation due to the weakening economy, rising unemployment, and consumers increasing savings.

Temporary Phenomenon

This is a temporary phenomenon. Sooner or later, the trillions of dollars created by government and given to the banks will be loaned out, as the banks will realize they can’t make enough money just depositing all their money with the Federal Reserve while repairing their balance sheets.

Sooner or later they will start lending the money into circulation. The velocity of money, combined with the huge quantities of money, will create monster inflation, but first, we have to wait out the present deflation.

Perhaps it should tell us something that despite the deflation, gold and silver are still rising. So what do you expect when the deflation is over and the velocity of money increases?

I believe there will be a veritable explosion of monetary inflation, and gold and silver will respond. In the meantime, they are not doing badly.

By Howard Ruff
The Ruff Times