Despite Pullback, Gold & Silver Action Remains Constructive

With global stock markets on the move and general weakness in the commodity sector, money manager Stephen Leed stated that, with gold moving from $1,200 to above $1,400, to see the market come down a little bit to consolidate is normal and healthy technical action.

Eric King
September 4, 2013
King World News

With global stock markets on the move, and general weakness across the commodity sector, today acclaimed money manager Stephen Leeb spoke with King World News about the pullback in gold and silver, as well as what investors should expect to see going forward. Below is what Leeb had to say in his fascinating interview.

Leeb: “The gold and silver markets seem to be backing and filling here. We have had a move from under $1,200 in gold, to above $1,400 very recently. So, to see the market come down a little bit and just consolidate is normal and healthy technical action.

It also tells you it’s technical action when the reason being given for the gold market’s decline is that the Indian currency went higher. How much sense does that make? None at all is the answer....

“But I think the next big event to watch will be the appointment of a new chairman at the Federal Reserve. The question is, who is going to succeed Bernanke?

President Obama wants to have control over as many economic levers as possible. This may lead him to choose Larry Summers, or, as I mentioned last week, Geithner himself. By choosing Geithner, Obama is helping to ensure the inflation he is looking for.

When push comes to shove, Eric, there is a tremendous amount of government debt which is owed by the United States. If you can get rid of that government debt by inflating it away, then this is what you should expect to see. This is one way of dealing with the debt problem and it is the path which has always been chosen by politicians.

Interestingly, the way most of the world got out of the debt situation during the Great Depression was that almost everybody defaulted. We have already had a number of defaults, but the problem is that there is still a tremendous amount of debt which is present in the system. So, more and more it appears the way governments will get out of their debt is through inflation. All of this is a recipe for much, much higher gold, silver and commodity prices.

The negative talk on China, which is still by far the most important consumer of commodities in the world, has turned out to be false. China seems to be engineering one of the great transitions in the history of economic development. They are transitioning from an export driven economy, to an economy that is going to be driven more by consumers. This move toward the consumer will mean urbanization.

China is investing in a smart grid which is a very expensive and resource intensive project. So, when you look at China’s tremendous demand for commodities, and you combine that with the groundswell of support for inflationary policies in the United States, you have this recipe for a point of inflection in the gold market.

So, this little backing and filling you are seeing right now in the metals doesn’t mean anything in terms of the big picture. As an example, silver was under $19 at the recent low. Silver is trading down today, but consider that gold and silver have had big moves off of the recent lows.

When I looked at some of the charts it showed the metals were overbought. We are now seeing some backing and filling, and this is solid technical action which will also relieve the overbought condition. But the fundamentals from the East in China, to the West in the United States, remain very, very firmly on the side of gold, and especially when it comes to silver.

Every time there is another bit of radioactive water leaking into the ocean of Japan, another solar panel is going to go up. And for every solar panel that goes up, there is more physical silver that’s needed. So, from Japan to China, and even the United States, demand for silver is going to continue to increase at a very, very rapid rate.

Investors just need to be patient as they see this type of pullback in the metals. In the short-term, could gold and silver pullback a little bit more? Of course. But the ultimate prices for gold and silver are going to be many times higher than where they are trading today. The bottom line here is that investors in physical gold and silver will be survivors in what promises to be a very turbulent time in the years ahead.”

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