Leeb - The Catalyst That Will Take Gold Over $10,000

Today acclaimed money manager Stephen Leeb spoke with King World News about the “... major catalyst for the next leg in this bull market, a leg that I contend could easily take us into five digits (above $10,000) in gold.”  Here is what Leeb, who is Chairman of Leeb Capital Management, had to say: “Gold had been up 8 days in a row and sort of flatlined today.  Silver has been up for six days in a row, and it’s up almost another 1% today.  These markets are catching on to something changing.

One of the things that is changing is Europe.  Merkel is no longer opposed, as she once was, to central bank buying of bonds.”

“I think she wants Greece to remain in the euro, and there is no way that happens if austerity is the primary objective.  All of the bad news, including slowing in China, is just further argument for more easing.  But I do think the Chinese, sitting on well over $3 trillion, have it in their power to arrest any slowdown, any time they want.

Recently, one of the interesting things was the BHP announcement that they were going to significantly reduce capital expenditures.  This has been widely interpreted, even by Kloppers (who runs BHP), as a very strong statement that China is down, and maybe down for the count....

“So Kloppers and BHP have decided to scrap nearly $70 billion of projects, mostly devoted to iron ore.  Now iron ore is an important metal because it’s the basis of steel.  But it’s also important that iron ore is the most plentiful of all of the critical metals.  There’s more iron ore than probably anything else.  You might even be able to go into your back yard and find a bit of it.

So you have to step back and ask yourself, why has iron ore soared along with everything else since the beginning of this century?  And here’s the valuable lesson, and this is what I think Kloppers is not telling us, iron ore has soared because it is very dependent on other commodities. 

In other words, the only way you get iron ore from the dirt to market, is by using massive amounts of energy, a lot of water, and a lot of other materials.  The iron ore is almost free for the taking, but the energy certainly isn’t, and the water certainly isn’t. 

One thing we know about energy is that marginal costs are rising rapidly.  What this means is that anyone who wants to expand in the iron ore business is going to be stuck with rising costs.  That meant that if BHP would have gone ahead with that major expansion, it would have been putting itself at a major disadvantage to other iron ore producers which are not expanding at this time. 

Even if demand from China is slowing, what about Indonesia?  What about India which is starting to run short of iron ore?  There is going to be massive worldwide demand for iron ore.  The key here is that BHP is cutting back because of resource scarcity, which in turn creates rising costs in terms of getting any resource out of the ground and into the market. 

And as long as resources are scarce, for whatever reason, this will move the monetary system closer to gold.  Gold is going to be needed going forward in order to ration these scarce commodities.  It will be needed to deal with resource scarcity.

It’s no coincidence that you are now hearing a lot of talk about gold being moved into a Tier-1 status, and a worldwide reserve.  The time is rapidly approaching where we are going to see gold, maybe it won’t be a full-fledged gold standard like we had before, but you are going to see gold counted as part of world reserves.

The Chinese know this and that’s why you have seen this massive increase in Chinese imports of gold.  Many central banks have caught on as well, which is why you see them moving out of paper and into gold.  This is a major catalyst for the next leg in this bull market, a leg that I contend could easily take us into five digits (above $10,000) in gold.

So you are going to have the one-two punch of surging inflation, and the realization that gold will play a role as a major currency going forward in the financial world.”

Leeb also added:  “As I mentioned earlier, silver has been up six days in a row.  KWN readers have to remember that silver is also a monetary metal.  Ironically, silver has been suffering in the past year or so because of its industrial aspects.

We also know that silver will play a major role in energy going forward, and with this incredible drought that is taking place, how can you not like silver?  How can you not like silver when it is the only way of producing energy without water?

So the bottom line is I see an unbelievably compelling argument for both gold and silver, and I would add, a horrible situation developing in bonds.  But the real bull market will be in the quality junior mining shares.  I urge people to buy these quality juniors, junior gold’s, junior silver’s.  Gold, silver and the shares will be a lifeboat in the financial storm that is still in front of us.”