With gold and silver making huge moves after the Fed announcement yesterday, today King World News interviewed acclaimed money manager Stephen Leeb, Chairman & Chief Investment Officer of Leeb Capital Management. Leeb told us yesterday’s Fed announcement is a game changer that has kicked off a huge second leg in the gold and silver bull markets. Here is what Leeb had to say: “I think what the Fed said yesterday is game-changing. They are opting for inflation and what really strikes me here, Eric, is they described their dual mandate in terms of employment first and price stability second. I don’t know any central bank that would put maximum employment in front of price stability. That’s not the mission of a central bank. Again, I think this is absolutely a game-changer.”
Stephen Leeb continues:
“Inflation will be let out of the bag, maybe for the next three to four years. In this environment gold and silver are the best investments around. Resistance points on charts don’t even count anymore when you are talking about a game-changing event like this. We are really talking about the next leg higher in this bull market. I think yesterday will go down as the beginning of the next major leg higher in the bull market. This is the leg I expect to take gold to $3,000 before the end of 2012.
This is a very big change. Just step back for a moment, the Fed is keeping interest rates at zero until the end of 2014. That’s almost three years. This is as aggressive as it gets and as bullish as it gets for gold. When you are looking at resistance points, that was pre-yesterday.
Today is a new chapter that starts with the title ‘Inflation is out of the bag.’ So the question becomes where does that take gold?....
“Well, look at the 1970s bull in gold. After inflation really started to assert itself, gold went up another eight fold.
I think this is a critical point, the move we’ve had in gold, over the past decade, has been in anticipation of inflation. We really haven’t seen gold react yet because inflation is still tame. We’ve had eleven years of a first leg in gold. Now we get the second leg and I say hold on to your hats because ultimately you are going to put another digit on the gold price.
This is more compelling than the 70s. Keep in mind, during the 70s when real rates were decidedly negative for a long period of time gold went up eight fold. Today that kind of advance would take us well over $10,000. I maintain what we’ve seen so far is just preparation for what we are going to witness over the next five or six years as inflation ramps. And once inflation starts to take off it will be very hard to stop.
Remember, China wants to eventually back the yuan with gold. This is why they have been accumulating massive amounts of gold. I predict in two or three years you will see oil priced in yuan or some basket in which the yuan is the central currency. When the yuan becomes the world’s reserve currency they will control the game.
Eric Sprott’s point about the Chinese accumulating gold through Hong Kong is dead on, but China has also been mining a lot of gold. They have been mining every single ounce possible. They are in an incredible hurry to accumulate as much gold as they possibly can.
This is all part of the long-term strategy by the Chinese and it doesn’t play to our advantage. My advice to everyone right now is, yes, gold is going to be volatile, but probably much less volatile, on the downside, than anything else out there and you should definitely own it. You should also own silver because it’s definitely going into three digit territory.”
