Today acclaimed money manager Stephen Leeb told King World News the West is becoming even more desperate as the Chinese are going to increase storage a staggering 180% this year for gold, silver and other metals. Leeb continues to believe that when the Chinese eventually have gold underlying their currency the game is over. Here is what Leeb had to say: “I’m focused on this battle between the West and the East right now, and the Basel III situation. The Basel III ratios that discuss liquidity ratios the BIS want the banks to maintain so they can survive a bank run are utterly baffling. The puzzling thing was what they said banks could hold in the event of a run on the banks or a liquidity squeeze.”
Stephen Leeb continues:
“The last time we had a run on the banks was in 2008 when liquidity became a major issue. In 2008, companies like GE were really having trouble turning over their commercial paper, so this was impacting everybody. The first of these Basel III requirements say that you can hold equities or BBB- bonds. Even with a haircut of 50%, this is ludicrous. Who is going to take a BBB- bond as satisfaction for liquidity in a true liquidity crunch?
What was left out was gold. Gold hold up well during the entire crisis. It looked like it had a normal correction during that period. It didn’t look like GE, which crashed and burned….
“Incredibly, the Basel III accord also allow banks to hold mortgage-backed securities as a liquidity cushion.
Gold held its own in 2008, better than virtually anything else in the world. So of course gold should have been included as an option amongst those junk assets. So why don’t they include gold? Imagine if they had mentioned gold as a liquidity cushion in the event of a major catastrophe. Gold would probably be trading at $2,200 or $2,300.
What would that say about the value of the dollar as a currency? It would mean the asset which would be the ultimate hedge in a liquidity crunch really is gold. But for them to say it would basically cause gold to shoot up, and that would devalue all of the global fiat currencies across the board.
Now, ironically, to cause gold to up that much and that quickly could hurt the Chinese because they are nowhere near buying the amounts of gold they ultimately want to possess. So the Chinese are just sitting there and saying, ‘Thank you,’ to the West because they are buying the hell out of gold and they really don’t want to pay $2,400 for gold when they can pay $1,600 or $1,700 for it.
Gold trading in Shanghai is also picking up, and they will probably have an ETF in gold in the next couple of weeks. Where are they going to get the gold to put into the ETF? They are doing everything they can to get as much gold as they can without totally disrupting the market.
The reality is, and this upsets the hell out of me, but they are getting a tremendous assist from none other than our BIS. I mean what would any sensible person rather have in a liquidity run? Would you rather have a BBB- bond, mortgage-backed securities, or gold? Obviously it’s gold.
Why didn’t the BIS say it? I’ll tell you why, it’s because they are scared to death. What you are seeing on the part of the West is ever-increasing desperation. Now, is it a coincidence that Warren Buffett, right after these ridiculous Basel III regulations came out on liquidity, said, ‘He guarantees us that US banks are in great shape?’
How great a shape are the banks in when fiat currencies eventually collapse and gold, silver and other commodities go to the moon and the economy stops functioning? They’re not. So everything we are seeing right now is desperation on the part of the West. The West is losing their head in terms of strategic moves because of this increasing desperation.
All of this is playing right into what the Chinese would like the West to do. They are giving the Chinese all the time they need to get their yuan backed by gold. There was a news release last night out of China stating, ‘Gold is going to become an ever greater part of our reserves. We are going to try to do it in a measured way.’
What do you think, that the Chinese are going to hold BBB- bonds and MBS as a liquidity cushion? It’s preposterous. Either the people heading the West have cumulatively lost their minds, or they are just completely desperate.
The message for investors is you better own gold. You better own some of those junior gold mines. You better own silver. Yes, the Chinese are accumulating silver for their energy needs. Right now the Chinese have 50,000 square meters of space to store metals. The Chinese are going to add another 90,000 square meters (a 180% increase) this year.
This is a country that is literally going to spend trillions of dollars to build out, urbanize, modernize, and put together an energy grid that is second to none. They know they will need a stable currency to do that. The only way to accomplish this is to own a great deal of gold to back their currency.
What the BIS and Basel III people just did was say to them, ‘Take your time China.’ Well, it’s almost game over. That’s what you are seeing play out right now. Gold probably has a downside of $1,600 here, and the upside is the moon. That’s just he way this is going to end and nothing can stop it now.”
© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.