Leeb:  “I’m focused on gold and it definitely has a bid right now.  I think it’s becoming harder for the bears to drive gold down at these particular levels.  Also, China increased their gold production last year.  At first glance, what does that mean?....

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“It means that despite dramatically lower gold prices, in the neighborhood of 25% to 28%, China still produced more gold.  The interesting thing is China is not particularly rich in gold reserves.  So for China to increase production in the face of a declining gold market means they are losing ever-more money, near-term, on the total gold production.

This is not a country looking to enter money-losing ventures.  This is a country seeking to dominate the world’s monetary system, and they obviously see gold as a way of doing this.  China continues to do everything they possibly can to accumulate as much gold as they can because they see it playing an increasingly important role in the world’s reserve currency.

Also, China has just become the world’s largest trading country, surpassing the United States.  The imports and exports from China are now larger than anybody else’s.  Now if you read through history you will find that the country which is most likely to have the reserve currency is most likely to determine the prices for most goods in this world and is going to be the country which has the largest trade.  This is now China.

China still has a way to go because there aren’t that many yuan out there, the yuan is controlled, etc., but every day that goes by they make progress.  If you look at a chart of the yuan vs the US dollar, you would think the dollar is already a third world currency.  The yuan continues to go up and set all-time highs.

China is being very deliberate in the way it is accumulating gold, and the rest of the world is rewarding their currency for this continued accumulation.  So China is now producing gold at a net loss, and accumulating as much gold as they can from the West at these depressed prices.  The bottom line is that China knows the price of gold will be over $5,000 an ounce in the future.

People are talking about revolts in China and how they are losing their control over rare earths.  None of this is happening.  China’s minimum wage has been rising at an 18% annualized rate.  That’s about the same rate of growth you have seen at Berkshire Hathaway over the past 20 years.  That’s an unbelievable rate of growth.  This is also something that is not consistent with an unsettled population. 

On the other hand, in the US we see real median incomes declining, and you see it’s almost impossible to buy health care at reasonable prices -- that is something to pay attention to.  The odds are stacking more and more against the US.

The US now believes that we will be fine when it comes to rare earths because Molycorp is increasing production and there was a discovery in Greenland.  The problem is that all of these rare earths are separated in China.  Finding rare earths is the easy part.  The hard part is separating the material and dealing with the radioactivity. 

You then produce permanent magnets.  These are the things that go into defense products, consumer gadgets and windmills.  China makes 75% of those magnets.  Japan makes 22% of them, but where does Japan get the ore to produce them?  If you guessed China you are right.

China, in effect, controls 97% of permanent magnets.  And the US puts out propaganda that China is losing control of this market.  They have to be laughing at us, Eric.  We have to wake up in this country or else we are going to lose control of everything.”

Leeb added:  “I know gold has been frustrating, but this is not the time to give up on gold.  Gold is going to be part of the new currency and it is becoming harder and harder to drive the price down because the West is running out of gold. 

I think gold has made its bottom, Eric.  It may not be up, up, and away, but gold will move higher in a strong pattern.  The action in the gold juniors right now is something I haven’t seen in a long, long time.  I think we’ve already seen the worst and everyone is going to be very, very pleased in the end with how gold advances and extremely thankful they own gold.”

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The audio interviews with Rob Arnott, William Kaye, David Stockman, Rick Rule, John Mauldin, Bill Fleckenstein, Dr. Stephen Leeb, Egon von Greyerz, Art Cashin, James Turk, Dr. Paul Craig Roberts, Dr. Marc Faber and Eric Sprott are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

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