With gold and silver consolidating recent gains, today King World News interviewed acclaimed money manager Stephen Leeb, Chairman & Chief Investment Officer of Leeb Capital Management. Leeb brought up the fact that we are seeing shortages in silver and, importantly, that gold production is declining. Here is what Leeb had to say: “What people don’t realize about silver is how illiquid silver is, and how little physical silver that is available in the market. Now you have the Canadian, (Eric) Sprott, who has really been spot on for more than a decade, Sprott has just raised money and needs to take delivery of another 10 million ounces of silver. My question is, from whom? That’s the question.”

Stephen Leeb continues:

“Who is he going to buy it from? The Chinese, who need it for solar? It’s not around. 10 million ounces doesn’t sound like such a big number, but when you have such illiquid markets, it is a big number. In reality, it’s a very big number, especially when you already have shortages. People are already hoarding silver. The Chinese are also hoarding silver.

When you have a situation like that, you haven’t seen anything yet in the way of a bull market in silver. There’s no way of saying how high silver is going to go, but this is going to become an exceptionally scarce commodity.

When asked about gold, Leeb stated, “Historically, when you see gold starting to act apart from other currencies, and not following the dollar, that tends to be extremely bullish for gold. That means people are reaching out and looking for another currency. These entities, which are buying, do not care whether the dollar is up or down.

Gold is no longer competing with any particular currency, it’s just sort of competing with itself. The long-term outlook for gold is extremely bullish, there’s no way around it. What surprises me is that there is no belief in this uptrend in gold. As an example, there was a report this morning that gold was going to top out at $2,000 and then enter a bear market. This is crazy....

“That kind of talk is absolutely nuts, but it’s exactly what you want. These kind of bearish reports are common and what it’s telling savvy investors is that the bull market in gold and silver has not really started. Meaning, we haven’t seen anything yet. All we’ve had so far is the appetizer.

When the bull market really gets going you’ll see everybody talking about this. You will see targets of $10,000, $12,000, $14,000 for gold, and $200, $300, $400 for silver, as being commonplace. Right now (in the mainstream media) you can’t get anyone to say gold will go much past $2,000.

One thing I want to point out, and what people don’t realize, is that bringing on gold deposits is a massive, massive task. It can take 5 or 10 years to start a new gold mine. The one thing you see, that is consistent here, Eric, is that cap-ex budgets continue to rise and rise dramatically for bringing on new gold production. The bottom line is that you are not going to see a lot of new gold production.

What we saw last year was a tremendous divergence between gold, which was up about 11%, and gold stocks, which were down, and in some cases dramatically. I’ve never seen anything like it in my life. I believe the differential between junior gold’s and physical gold was like 30% or 40%. I’ve never seen anything like that.

One of the major factors has been weaker gold production. In fact, gold production has been declining and it’s going to continue to decline. Based on current trends, you have to say you are at peak gold. There is just no doubt about it.

I’m going to tell you right here that I think gold will end the year close to $3,000. Silver will end the year at all-time highs. My guess is the price of silver will end 2012 at $60, $70 or $80, and that will surprise a lot of people.”

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