Renowned precious metals investor Peter Schiff has delivered a striking forecast for the US bond market, real estate sector, and precious metals. The recent wave of Treasury selling has pushed US financing costs to a 24-year high, and in his view, this bond selloff is only the beginning. He further suggested that the US government may ultimately repay creditors only 50 cents on the dollar.

As a gold bull who warned of the real estate bubble before the 2008 financial crisis, Schiff argues that the debt burden in this cycle no longer rests with ordinary households but with the US federal government. He also shared his personal asset allocation approach, noting that he has directed more capital toward gold mining equities rather than physical bullion.

Long-Term Bond Bear Market Begins: Rising Rates Set to Crush US Housing

Schiff stated that the decades-long bond bull market came to an end in 2020-2021, and what lies ahead is a long-term bond bear market lasting at least 20 years, with interest rates rising even faster than the pace of decline seen over recent decades. The mortgage market will feel the policy impact first, and he expects the 30-year mortgage rate to climb to 9% by the first quarter of next year, with US home prices potentially falling 30% to 50% — a decline at least as severe as the 2007-2008 housing crash. For decades, American homeowners could tap home equity through refinancing to fund consumption, but Schiff believes that era is over. He said: "Home refinancing has lost its room, the home equity cash-out model no longer exists, and households have lost this important financial buffer channel."

According to the Mortgage Bankers Association, the average 30-year mortgage rate reached 7.49% in the week ending October 2, the highest since November 2023. The Federal Reserve Chair completed the first rate hike since 2023 in September, further increasing pressure on market interest rates.

The High-Debt, High-Rate Trap: The US May Face a Hidden Debt Default

Schiff argued that the US is currently in a unique quadrant of high debt combined with high interest rates. In the past, a low-rate environment could sustain high debt levels, but the situation has now reversed. He believes the US has only two paths: either rely on inflation to achieve a hidden debt default or directly carry out debt restructuring. He said: "There is a possibility of US government debt default, and the more likely approach is debt restructuring — telling creditors that only 50 cents will be paid on every dollar of principal."

The Congressional Budget Office estimates that annual federal debt interest payments have already reached approximately $1 trillion. Schiff predicts that as existing debt is rolled over at higher rates, interest expenses will balloon to $3 trillion to $4 trillion within a few years. He also questioned the Treasury's bond buyback program, describing it as similar to Operation Twist — repaying long-term bonds while issuing short-term Treasury bills — and warned that if rates continue to rise, the measure will produce negative effects.

Gold Set for Long-Term Tailwinds as Precious Metals Allocation Strategy Shifts

During the period of rising US Treasury yields, spot gold prices briefly fell to around $4,100 per ounce, a significant retreat from the historical high above $5,500 earlier in the year. The market widely believes that gold generates no interest and that rising bond yields erode gold's appeal, but Schiff holds the opposite view. He said: "Rising bond yields essentially reflect collapsing bond prices, with bond investors continuing to suffer losses. When investors choose to sell bonds and recover their capital, gold and silver will become important allocation targets — this is an extremely strong tailwind for both metals."

He cited market history from the 1970s, when interest rates and gold prices rose in tandem, with the core criterion being whether rates could outpace inflation. He also predicted that silver prices are far from their peak, stating that $125 per ounce is not the ultimate high and that substantial upside remains. Global central bank gold buying continues to support prices, with a major Asian central bank adding to its gold reserves in September for a 23rd consecutive month. Schiff believes gold will become the last remaining safe asset.

Personal Asset Allocation and Outlook for Future Inflation

Discussing his personal asset allocation, Schiff said he has directed more of his capital toward gold mining stocks rather than physical bullion. He said: "I want to own gold resources still buried in the ground. I prefer mining equity assets, with a priority on royalty companies and junior miners." For ordinary savers, he does not recommend US bond funds, suggesting money market instruments for the cash portion. He also offered a practical tip: stock up early on non-perishable daily necessities to hedge against inflation eroding purchasing power.

A recent New York Fed survey showed that Americans expect inflation of 3.9% over the next year, the highest level since May 2023. Schiff believes the market still underestimates the extent of future inflation. AI industry expansion will also push rates higher, as large technology companies shift from being buyers of US Treasuries to borrowers, competing with the US government for market capital.

Conclusion

Schiff's entire set of predictions paints a picture of enormous risks facing the US high-debt system, with both the bond and real estate markets set to endure sustained pressure. However, there are dissenting voices in the market: the 10-year Treasury auction saw decent subscription demand, with a winning yield of 5.3%, the highest since 2000. The Fed's September meeting minutes showed that officials unanimously agreed to raise rates, with most officials believing another hike is likely within the year. Schiff acknowledged that technological progress driving productivity gains is the only opportunity to break the deadlock, but the probability of that happening is low. He described the US debt system as a time bomb whose detonation timing cannot be predicted.

Spot gold daily chart. Source: Yihuitong. As of 10:41 Beijing time on October 9, spot gold was quoted at $4,176.54 per ounce.