Surprise Second-Half Gold Rally, Says Guru Economist

The man whose passion for urging investors to load up on gold bullion since the Fed tipped its monetary policy hand following the collapse of Lehman Brothers in 2008, has jumped a notch in intensity in his latest update for gold investors.

Stephen Leeb, economist and best-selling author, told King World News Washington lawmakers and Federal Reserve Board of Governors have been so reckless with their handling of U.S. budget deficits and monetary policy in response to the collapse of the global credit Ponzi scheme that he wants to move to Canada before the crisis in Europe blows up—because, after all, a repeat of the past will most likely strike again.  Sign-up for my 100% FREE Alerts

It was Europe that triggered the greatest economic depression in U.S. history—the Global Depression of 1873-96.  Then it was the U.S.’s turn to return the favor during the decade of the 1930s following the 1929 U.S. stock market crash which quickly spread to London, Paris and across the rest of continental Europe.

According to Leeb, the relatively sanguine Leading Economic Indicators (LEI) data streaming in of late is now topping.  The second half of the year will reveal what the Fed most likely already knows is coming, a catastrophe—the beginning of the next leg down in the global economy that will turn the most defiant of the reality confronting the U.S. into true believers.

Jim Rogers of Rogers Holdings and economist John Williams of shadowStats.com, too, expect the worst of the trouble to gather steam after the election.  The Fed is expected to preempt the downturn in the LEI with more QE.

“QE3 to me seems to be a 80-20 probability right now, within the next 3-4 months, or maybe even 90-10 given that there’s an election out there,” said Leeb. “I don’t see any reason not to be in gold at this point, even from a relatively short-term basis.”

“Long term, the case is so powerful it’s . . you know . . it’s crazy,” Leeb added. “Gold, gold junior miners, you know, you’re not going to believe what it gets to in five years.  I mean this is a gift—all these prices at this point, all of them.”

Leeb goes on to say the eurozone is seriously flawed, as the Maastricht Treaty of 1992 didn’t account for the problems that may arise considering the disparate economic models between member nations.  As an example, Germany’s culture of production and stable fiscal and monetary policy starkly contrasts with Spain’s culture of collectivism leanings and zestful social lifestyle.

“The euro is not going to last . . . Spain right now has about 25 percent unemployment, Leeb explained.  “They’re being forced to be austere to satisfy the needs of the euro, and that’s just not going to fly.  It’s no going to fly.”

Unlike some economies, such as the United States of post WWII, massive debt and deficits incurred by Spain cannot be grown into, according to Leeb.  U.S. production capacity and global position relative to its competitors after the devastation of Europe during WWII allowed U.S. deficits approaching 30 percent of GDP to quickly shrink to a surplus within several short years.  In contrast to the example of Spain, its model and position on the world stage cannot achieve anywhere near similar results.  Ditto for Greece, Portugal and other European nations.

“What does Spain produce?  I’m not even sure what Spain produces . . . They’re not a country that can really grow their way out of the kind of mess that they’re in right now.  And if that’s the case, soon or later something is going to break.

“And curiously enough, Eric, that is what’s holding gold; that’s the difference between gold being $1,600 today and gold being at maybe $2,500.”

Leeb continued by telling investors that the price of gold today already reflects the expectation of another plunge in the gold price in sympathy with a collapse in the euro, similar to the drop in gold following the surprise collapse of Lehman Brothers and the immediate liquidity a sold gold position provided the global financial system during that crisis in 2008.

Is FX Concept’s John Taylor wrong about gold’s probable fall to the $1,000-$1,200 level before retracing to new highs?  And for the time frame of his prediction, Taylor said in a Bloomberg interview in the summer of 2011 that sometime in April or May (of 2012) gold would become a super bargain.

Leeb says, probably not so.

“ . . . in Europe, it’s the same kind of calculus [a Lehman-like event].  People feel that there will be a major event.  When, is the only question,” Leeb said.  “And they’re a little bit scared to get into gold with both feet until that event is out of the way.  So my advice to people is, not buy that conventional wisdom because, it doesn’t usually play out the way people think [it will play out].

“But if it does, have a little money in reserve because, any drop you see in gold based on some catastrophe in Europe is probably going to be the greatest buying opportunity of your life.  And I’m not really kidding about that.”

Leeb is so convinced of gold’s meteoric rise following a potential sharp drop in its price that he even suggested buying the precious metal using margin.  Sign-up for my 100% FREE Alerts

Source: KWN

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