China's central bank recently made its largest monthly gold purchase in two years. Central banks have continued buying gold even though the metal trades almost $1,500 below its January record. Borrowing costs have also continued to rise. Mortgage rates are at their highest level in nearly three years, and the yield on Washington's 30-year borrowing is at its highest since 2002.

In an interview with Kitco News, investor Peter Schiff argued that the rise in bond yields signals a broader financial and sovereign debt crisis. He said that the crisis will affect home prices, government finances, the dollar, and retirement savings. He also said that gold and silver remain the appropriate hedges against this outcome.

Bond Market and Government Borrowing

Schiff said that rising yields reflect the consequences of years of government over-borrowing. He stated that yields will continue to rise and that the current move is "closer to the beginning" than to its end.

He described the bond market as a multi-decade cycle:

Schiff expects the bear market to last at least half as long as the 40-year bull market, or about 20 years. He said rates could rise faster than they fell.

He said that the decade-long performance of U.S. Treasuries is the worst in 100 years. He added that the performance has been weaker than in the 1970s.

Mortgage Rates and Housing

Schiff said that the 30-year mortgage rate reached 7.49% in early October. He forecast that mortgage rates could reach 9% by the first quarter of the following year.

He argued that housing affordability is already severely strained at current rates. In his view, only a sharp price decline can restore affordability. He estimated that real estate prices could fall 30% to 50% nationwide. He said such a decline would be as large as, or larger than, the drop during 2007–2008.

Schiff said that most homeowners remain in their homes only because they hold fixed-rate mortgages at 3% to 4%. He argued that once home equity erodes, owners with negative equity have little incentive to keep paying, even when payments are low.

He also said that the refinancing channel has closed. Homeowners can no longer refinance and extract cash to lower payments and fund spending. Second mortgages carry higher rates because lenders occupy a subordinate position. Credit card rates can exceed 20%.

The Four-Quadrant Framework

Schiff described the U.S. fiscal position as a sequence of four stages, defined by the level of debt and interest rates:

Schiff argued that the United States is now in the fourth quadrant. He said the outcome will be the largest financial crisis in U.S. history. He also said that other countries will face severe difficulties.

He cited the IMF's warning this month that rich countries are the "worst offenders" on debt. He noted that Japan has added debt for decades, supported by low interest rates. He also pointed to Britain, France, and European countries with high debt levels, though he said their debt is smaller than that of the United States.

Federal Debt and Interest Costs

Schiff provided the following figures:

• Federal debt: About 31% of GDP in 1981, according to FRED data. Debt is now more than three times that level.
• Interest payments: About $1.2 trillion to$1.3 trillion per year, or nearly half of the official deficit.
• Official deficit: About $2 trillion. Schiff said that honest accounting places it above$2.5 trillion.
• Future interest payments: Could reach $3 trillion to$4 trillion per year within a few years.
• Future deficits: Could reach $5 trillion to$6 trillion per year.
• National debt: Schiff projected a rise from $50 trillion to$60 trillion within two years.

He said that interest payments increase deficits, which in turn require more borrowing. He described this as an exponential increase in debt that cannot continue without a major collapse.

How the Debt Could Be Resolved

Schiff outlined two principal paths.

Inflation. Inflation reduces the real value of debt. Schiff said that President Donald Trump has described debt as beneficial because inflation erodes it. Schiff called this approach a stealth default.

Default or restructuring. Schiff said that defaults in the private sector are likely, including mortgages, corporate debt, commercial real estate, and business loans. He said that the risk of a U.S. government default is not zero and that a restructuring is more likely than an outright non-payment. Possible measures include:

• Reducing the face value of bonds, such as paying 50 cents on the dollar
• Extending maturities, for example to 30 or 50 years
• Lowering coupon rates, such as reducing a 5% coupon to 1%

Schiff said the debt will not be repaid in real terms because the tax base is insufficient.

Losses on Existing Bonds

Schiff said that some 30-year Treasury bonds issued in 2020 now trade at about 43 cents on the dollar. He said that the government will still pay face value at maturity, but that holders who sell before maturity will take market losses. Those losses result from rising yields on newer, higher-yielding bonds. Schiff said that these losses will continue, and that bond prices are not near their bottom.

Banks, Government-Sponsored Enterprises, and Bondholders

Schiff said that banks hold large amounts of government debt and would become insolvent if bond losses deepen. He cited the 2023 failure of Silicon Valley Bank as an example of how such losses can spread.

He said that Fannie Mae and Freddie Mac are "going broke again." He stated that a loss of less than 3% on their roughly $78 trillion in insured mortgages would eliminate 100% of their capital. He said the government would need to inject additional taxpayer funds. He also criticized the earlier plan to release the two entities from conservatorship through an initial public offering. He said that plan was never feasible.

According to Schiff, the holders of U.S. debt include banks, insurance companies, and hedge funds. Foreign central banks have reduced holdings, particularly of longer-dated Treasuries. The Federal Reserve holds a large share of long-term Treasuries.

Guidance for Savers

Schiff said that holders of U.S. bond funds in retirement accounts should not continue to hold them. He recommended money market funds, which he said offered a yield of 4.25%. He noted that money market investors can withdraw their capital at full value. Bond fund investors who sell before maturity can face losses.

He said that holding bonds to maturity would still result in real losses if inflation exceeds the coupon rate.

Social Security

Schiff said that Social Security cost-of-living adjustments will not match actual living costs, because they rely on the Consumer Price Index, which he said understates price increases. He argued that higher benefits raise government borrowing, which increases inflation.

He cited projections from the Social Security trustees. Under current law, reserves are projected to be depleted in late 2032. Income taxes would then cover about 78% of scheduled benefits.

Schiff made the following points:

• The reserves are not real assets. The surplus payroll taxes were spent decades ago, and the trust funds hold government bonds.
• The trust funds are now selling Treasuries to pay benefits. Ten years ago they were buying Treasuries.
• Once the trust fund holdings are exhausted, Congress will need to borrow more or cut benefits.
• The current estimate of a 30% across-the-board benefit cut is, in his view, optimistic.

He said the program should be eliminated and replaced with a temporary, means-tested program for elderly people in financial need. He said payroll taxes should also be eliminated because they burden younger workers. He stated that he has never expected to receive his own Social Security benefits and has not claimed them.

Inflation, Savings, and Consumer Spending

The host cited a New York Fed survey showing that Americans expect inflation of almost 4% next year. Schiff said consumers' expectations are more accurate than the Federal Reserve's forecasts but still underestimate inflation.

Schiff said that after taxes, interest on certificates of deposit would be negative after adjusting for 4% inflation. He recommended that households buy non-perishable goods now, because prices will rise. In his view, a 10% or 20% price increase within a year represents a tax-free return. He said households with surplus cash could then buy gold and silver.

Treasury Operations and Monetary Policy

The host asked about the Treasury's buybacks of older, longer-term bonds, which Schiff had previously described as QE through the back door. Schiff said that the operation is not quantitative easing. He described it as an operation twist, in which the Treasury buys back long-term bonds and issues short-term debt.

He said the operation is a mistake. The government will need to refinance short-term debt at higher rates than those on the long-term bonds it repurchased. He said the operation is a temporary measure to lower long-term rates, possibly before the midterm elections.

Schiff argued that the Federal Reserve will eventually resume buying long-term Treasuries. He said that yields rising to 5%, 6%, 7%, or 8% would make debt service unaffordable and buyers scarce. In his view, the Fed would then purchase bonds that the market does not want, creating money to keep yields at levels the government can afford.

The Treasury reportedly is considering scrapping the 20-year bond. Schiff noted that the Treasury mainly issues 10-year and 30-year bonds.

The host noted that the Treasury will publish its borrowing plan the morning after November 3.

Artificial Intelligence Investment and Borrowing

A bank group is reportedly preparing a record $60 billion loan that would allow an AI company to lease computer chips. A former Bridgewater strategist argued on CNBC that private-sector AI investment, rather than Washington, is currently driving economic growth.

Schiff said that government stimulus fuels consumption and creates inflation. Private capital investment, by contrast, can produce productivity gains. He said the investment could pay off, but that the outcome is uncertain.

He agreed that AI investment raises interest rates because it increases competition for borrowed funds. He said that hyperscale technology companies, including Meta, Alphabet, and Amazon, previously held cash and bought Treasuries. They now borrow in competition with the government. Schiff also cited the government, the Social Security trust funds, and foreign central banks as large sellers or borrowers of Treasuries.

Bank of America analysts have said a tech bubble is forming while advising clients to invest. Schiff said there is a probability that AI will raise productivity enough to reduce the debt burden as a share of GDP. He said he could not assign a reliable probability to that outcome. He said the timing of any productivity gain and the risk of a crisis in the interim are the key uncertainties.

He said that the companies most exposed to everyday consumer spending have declined. McDonald's is down about one-third from its high, Home Depot about 28%, and Nike more than half. Schiff said that inflation remains the largest threat to retirement savings.

The U.S. Dollar

Schiff said that all fiat currencies are weakening and that the dollar appears stronger only because other currencies are falling faster. He compared this to two cars moving backward at different speeds.

He expects the dollar to lose value faster than many other currencies because of the scale of U.S. debt. He also expects the dollar to lose its reserve currency status. He said that reserve status has allowed the United States to finance large debts, and that a change in central bank demand would be significant.

Prediction markets on Kalshi placed the probability of another Federal Reserve rate hike before year-end at 78%. Schiff said that higher rates tend to strengthen the dollar in algorithmic trading, but that these programs do not account for long-term effects. He said that rates rose throughout the 1970s and gold rose alongside them. He argued that real interest rates, not nominal rates, determine outcomes. If inflation exceeds nominal rates, real rates fall.

Foreign investors put nearly $1 trillion into U.S. stocks over one year, according to Commerce Department data. Much of this went to technology stocks. Apollo chief economist Torsten Slok said most of these investors do not hedge their dollar exposure. Schiff said equity investors are not greatly concerned about currency risk because stock gains could exceed currency losses. He said currency risk matters most for bondholders. For example, a 5.5% Treasury yield could be wiped out by a small currency move. If foreign investors expect dollar losses of 10%, they would be unlikely to buy Treasuries yielding 5%.

Central Bank Gold Purchases

China has added about 103 tons of gold this year, according to its own data. Central banks worldwide purchased 39 tons in August, according to the World Gold Council. Poland was the largest buyer, with 98 tons.

Schiff said that much of the buying comes from newly mined supply, which mining companies sell directly. He also said that gold exchange-traded fund outflows have contributed. In earlier years, net outflows from the SPDR Gold Shares ETF moved gold to foreign central banks. Schiff said Chinese and Indian consumers continue buying gold. He said the supply of sellers will eventually be exhausted and expected gold and silver to be the last safe haven after fiat currencies and cryptocurrencies.

The World Gold Council reported that Russia's central bank sold 56 tons of gold from its reserves this year. Turkey sold about 82 tons. Schiff said Russia is selling gold because it is at war and needs funds. He said gold serves as a liquid reserve that central banks can use to back currencies and meet financial needs.

Russia's finance ministry reported that it is buying five times as much foreign currency and gold this month as last month, because oil revenues exceeded expectations. The ministry did not specify the gold portion. Schiff said that a larger share of oil revenue will likely go into gold rather than dollars. He said that U.S. use of the dollar for sanctions has created a vulnerability for any sovereign holding dollars or Treasuries. He criticized the Biden administration's sanctions on Russia after its invasion of Ukraine, saying they signaled that U.S. dollar and Treasury assets were not secure.

The Dutch central bank moved 86 tons of gold to London to ease trading. ICE launched gold futures in London.

Gold Prices and Forecasts

Gold traded near $4,107 per ounce on the spot bid, according to a Kitco chart cited in the interview. Schiff said that gold broke above resistance near$2,000, which dated to 2011. It then rose to about $5,500 and pulled back to around$4,000, where Schiff said it is forming a base.

Silver traded below $30 in 2024 and then quadrupled to$125 per ounce. It has since retreated to about $60, above its earlier double top. Schiff said$125 was not the peak and expects higher prices in the next cycle.

Gold fell almost $100 at one point during the session, and silver fell more than$20. Schiff said traders were reacting to rising bond yields as if they were negative for precious metals. He argued the reverse: bond prices are falling, investors are losing money, and they will seek alternatives such as gold and silver.

A survey of delegates at the London Bullion Market Association annual conference placed gold at about $5,000 one year from now. Schiff said this forecast is about 25$5,000 quickly on its previous move and could do so again. He expects the market to recognize the bond market's implications for gold once a financial break occurs. He suggested that a failure, such as Silicon Valley Bank or Signature Bank, may be needed before that happens.

Gold Ownership and Investment Vehicles

Schiff said investors should avoid numismatic coins, proof sets, and collectibles. He recommended recognized bullion bars and coins from reputable dealers with low markups. He said his firm charges customers 1% to 2% above cost for gold and silver. He said physical bullion is highly liquid and can be sold, bartered, or held indefinitely.

Investors with brokerage accounts can buy ETFs that track gold. Schiff said that he holds more of his own capital in mining stocks than in physical bullion. He prefers mining equities because he regards gold in the ground as undervalued.

Schiff manages the Euro Pacific Gold Fund, which can be purchased without a load through any discount brokerage. He also manages separately managed accounts in gold-related equities, as well as foreign dividend and income strategies. He said some of those strategies hold mining companies that pay dividends. He expects those dividends to increase as profitability rises.

Schiff said his fund overweights royalty companies, which provide lower-volatility income streams, and holds positions in junior miners, which offer the greatest upside potential. He said the fund has underperformed in recent years because large-cap stocks rose more than royalty companies and junior miners. He expects junior miners to outperform in the next phase of the gold cycle.

Political and Jurisdictional Risk

Schiff said that governments can confiscate assets or revoke mining permits, change royalty terms, or alter other conditions. He said he manages this risk by avoiding jurisdictions with the highest risk. He said he diversifies geographically because no jurisdiction is risk-free. He also noted that most major mining companies operate in multiple countries.

Physical Storage and T-Gold

Schiff said that foreign central banks are increasingly repatriating gold to their own borders. For individuals, he said the most practical option for most of the gold is private storage in a secure location, because gold is compact and has high value density. He cautioned that physical theft is a risk.

He also described third-party storage through his new venture, T-Gold, at Shift Gold. Under this model, gold and silver are stored or allocated for storage, held in the customer's name, and not physically delivered. Customers have immediate access to the value of their holdings. The company plans to launch debit and secured credit cards linked to the gold. Schiff said transactions would trigger an immediate sale of the metal at the prevailing price. He said the long-term goal is a platform for commerce in gold, including invoicing and settlement in gold. Customers could also withdraw a tokenized receipt representing ownership of gold, which he said can be transferred instantly.

Taxation and Wealth

The host cited a Financial Times report that China will begin collecting a 20% tax on income from offshore trusts. Schiff said governments that need funds will turn to more aggressive measures. He predicted significant tax increases on wealthy individuals next year, which he attributed to a Democratic Congress and expected approval by Trump. He said the increases will be accompanied by higher government spending. He argued that higher taxes on the wealthy will raise less revenue than expected because high-income taxpayers will reduce taxable activity, which will lower economic growth and other revenues. He concluded that deficits will grow.

Political Outlook

Schiff said that voters are reacting to financial hardship. He said the Republican Party is likely to lose its majorities in the House and the Senate. He argued that neither party addresses the debt problem, because both have increased borrowing, spending, and inflation. He said officials avoid austerity because it is politically costly, which leads to postponement of the problem.

Advice to the Treasury Secretary

Asked what he would tell the Treasury Secretary in private, Schiff said he would advise the Secretary to press the president for large spending cuts across the government. He said the Treasury should disclose its financial condition and pursue a preemptive debt restructuring. He said interest rates should be allowed to rise to market levels rather than being suppressed through inflation. In his view, a restructuring at 50 cents on the dollar, without inflation, would be preferable to repayment at face value that loses purchasing power.

Gold Revaluation

Washington still carries its gold at $42 per ounce on its books. Schiff said that revaluing the gold would not change the government's purchasing power. He said the government would receive market prices if it sold the gold, and that a higher book value would not create real resources. He noted that the government can set the dollar value of gold for official accounting, but that the market price would still determine the value of gold holdings. He said the idea that a gold revaluation would save the dollar is a myth. He said certain cryptocurrency participants have proposed using a revaluation windfall to buy Bitcoin for a strategic reserve. Schiff called that proposal nonsense.