Thursday, November 8, 2012

Leeb Sees China Implementing Gold Standard

In what would be an extraordinary event if it happens, Stephen Leeb said he believes China is working towards implementing a gold standard to back up the renminbi or yuan.

Leeb said this in an interview with King World News, "China wants gold so they can continue with their plans. They want their currency backed up in gold and they are going to continue to buy it. So gold may weaken, but if it does people should buy it. Once gold starts taking out the all-important $1,800 level, you are not going to have a chance to get into the market. It will not let you in."

As to whether or not China goes on a gold standard or not really won't have an impact on the price of gold, as it'll go up whether China does or not, as the country will continue to buy as part of its economic and financial strategy.

I don't mean by that a gold standard wouldn't boost the price of gold, just that China will buy up gold with or without a gold standard, and that's one element concerning the price of gold that a lot of investors and the media aren't talking a lot about.

Most are focusing on how the money created out of thin air by major central banks around the world will impact gold prices, and silver as well; which is of course of major importance too.

According to Leeb, China has boosted its acquisition of gold by three-fold over the last year, and it doesn't appear to have had any effect on the market at this time. Sometime it will, as news gets out about the demand factor of gold in that regard.

Assumptions are China is bolstering its gold reserves in order to use it to acquire much needed commodities over the years ahead.

Some wrongly believe that China has reached some type of peak concerning building the infrastructure of the country, but it's really only taking a breather, and most likely we'll see them reallocate assets to building out its infrastructure rather than creating cities with few people residing in them.

Leeb gave this advice concerning investing in gold: “My advice is if we get a dip in gold, I would buy that dip.  Gold has a lot of support.  I think long-term and that’s a bet that I’m always willing to make.  I haven’t sold a single ounce of gold or a single share of a gold stock.  That is because I am positioning and I am thinking about the long-term."

Interestingly, we haven't really seen much in the way of "official" inflation at this time. Once that kicks in, along with stimulus and Asian demand, gold will rise to unprecedented levels.

Silver is one of the few assets he sees will come close to rivaling gold going forward. He didn't mention much about demand and it being an alternative to many investors who are being priced out of the gold market, as he commented on the possibility of governments stepping in and not allowing people to buy it any more.

“Having said all of this, if there is one investment that can possibly rival gold, it’s silver.  People don’t realize this, but at some point governments may say to their people, ‘We need the silver and you have to stop buying it.’  When that point comes, silver is likely to be at $150 to $200.  So there is still a lot of room in the silver market.”

Other than China and other Asian markets acquiring gold, the reasons gold will go up are the same reasons silver will, and silver has a much larger demand from the industrial sector versus gold, but is considered secondary as a form or protection and an alternative currency than gold is.

A number of commodity investors see silver outperforming gold over the next decade, but I think that will depend largely upon how much demand Asia has.

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