Since the Federal Reserve's continuous interest rate hikes in March 2022 in response to inflation, investors have been trying to address two key questions: whether these measures can effectively stabilize prices and when the Federal Reserve may change its strategy?

Recent developments have made the situation clearer. At the Jackson Hole Economic Symposium held last week, Federal Reserve Chairman Jerome Powell stated that "inflation has significantly declined" and that a change in policy is imminent. "The timing and pace of interest rate cuts will depend on upcoming data, evolving outlooks, and balancing risks."

Although lower interest rates generally stimulate economic growth and inspire investors, doubts still exist.

Peter Schiff, Chief Economist and Global Strategist at Euro Pacific Asset Management, has expressed great concern about the upcoming policy shift by the Federal Reserve. In a recent article published on X, he warned, "If you think inflation is bad when the Federal Reserve claims to be fighting it, just wait to see how bad inflation will become after the current false fight ends."

Schiff's concerns are not limited to inflation, as he also highlights the potential risks faced by the US dollar and the broader economy.

Dollar crisis?

Schiff has conducted research on the US Dollar Index, which measures the value of the US dollar against a basket of foreign currencies, including the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc.

The US dollar index was established in 1973 with a base value of 100. It reached a high of 164 in 1985 and a low of around 70 in 2008. Recently, the index has fallen after Powell hinted at a policy shift in his speech.

On August 23, the US dollar index closed at 100.67. Sheff pointed out, "The index will likely fall below 90 by the end of the year, challenging the low point of 2020."

This prediction of a depreciation of the US dollar could have widespread effects. A weaker US dollar typically makes US export products cheaper and more competitive overseas, potentially boosting US manufacturing and exports.

However, it can also make imported goods more expensive, thereby exacerbating domestic inflation by increasing the cost of foreign goods and services.

Looking ahead, Sheff predicts that the depreciation trend of the US dollar will continue until 2025. He said, "I believe the US dollar will hit bottom in 2025, triggering a dollar crisis, economic collapse, and a surge in consumer prices and long-term interest rates."

Sheff did not provide further details in the article, but a rapid depreciation of the US dollar could undermine international confidence in the US currency as a store of value and medium of exchange. The resulting economic turmoil could also impact the US economy by increasing the cost of repaying US dollar debt, especially for foreign borrowers.

Is the Federal Reserve wrong?

Sheff's pessimistic forecast for the US dollar has led him to consider gold as an alternative store of value.

In another article on August 23, he wrote, "Gold rose today, closing above $2,500 for the second consecutive week," while the US dollar index fell to its lowest level in 13 months.

He interprets this trend as evidence of the Federal Reserve's misguided policy shift. He believes, "This clearly confirms that the Fed's turn is a mistake."

Sheff always believes that the battle against inflation is far from over. With the Fed signaling a shift, his conviction is even stronger, and he expects inflation to rise further.

He predicts that the value between the dollar and gold will continue to be inversely related. He says, "Rising inflation and declining interest rates mean that the dollar will fall to rock bottom, while gold will soar."

Traditionally, gold is considered a hedge against inflation because it is a tangible asset that is not affected by monetary policy and does not depreciate like fiat currency due to inflation. Recently, this precious metal has received widespread attention from investors, with its price soaring 23% in 2024 compared to the previous year.

Sheff not only conducts theoretical research, but also invests according to his own beliefs. The latest Form 13F submitted by Europe Pacific Asset Management Company shows that precious metals are highly valued in Sheff's investment strategy.

As of July 30, the largest holdings of Europe Pacific Asset Management Company were gold mining company Agnico Eagle Mines (AEM), and the second largest holding was Barrick Gold Corporation (ABX), another heavyweight player in the gold mining industry.