Money manager says China’s appetite for the silver will push metal become ‘three-digit’ commodity.
Stephen Leeb, chairman and chief investment officer of Leeb Capital Management, has been managing big-cap growth portfolios since 1999. Recently he has been a big proponent of silver, calling for the metal to rise above $100 an ounce, despite its record price being half that. He took time to talk to Hard Assets Investor Managing Editor Drew Voros about why he believes silver will become a three-digit commodity.
Hard Assets Investor: You have declared that silver is a “three-digit” commodity. Why?
Stephen Leeb: I think there are two crucial fundamentals. One, silver’s a monetary metal, although not as widely recognized as a monetary metal as gold right now. But it certainly has a history of being a monetary metal. People will price it for that. You have a race to the bottom in terms of all the current reserve currencies, like the euro and the dollar. The action in gold is certainly evidence of that. The fact that silver’s price is holding in the upper 30s is pretty good. There’s a lot of downside protection in silver because of its monetary component.
On the industrial side, silver is critical. Silver has properties that cannot be duplicated on many levels. It is the best thermo-conductor of anything that’s found. It conducts heat better than anything else. It conducts electricity better than copper or anything else. And, it’s one of the best reflectors. Is it really surprising then that silver is a critical component on most solar applications? China right now is spending about $1 trillion a year on alternative energies. China controls the solar industry. They have at least 50 percent market share. They’ve been underbidding, undercutting everybody in the development and acquisition of polysilicon. After which comes silver. In order to build these solar panels, you need silver.
You have a potential, utter squeeze coming on silver, a monetary metal with critical industrial applications. Silver’s trading around $39 and hasn’t even come down 10 percent since the market started sliding. It’s a great hedge in deflation. You’re going to have demand for silver coming from two places, which I don’t think you’re going to be able to satisfy, given that silver production today is rising at a much slower rate than it was in 2010, despite the fact that silver prices are higher. That dictates dramatically higher prices for silver.
HAI: Do you think the solar element is something that is being overlooked in terms of the demand?
Leeb: Totally. China will start buying silver much more aggressively and start accumulating it. There’s very little doubt in my mind that China will be accumulating massive amounts of silver.
HAI: For silver to achieve three digits in price, would it be a slow, steady march, or something that would rocket up?
Leeb: I don’t think it would be a single event. I wrote a book, “The Oil Factor,” and in it I made the call for $100 [a barrel] oil. I said “three digit oil.” When the book was published in 2004, oil was around $30 or so, about the same price as silver is now. It took about three years to get to three digits. But there was no event that triggered the big jump in oil prices. There has been no event that has triggered the big jump in gold prices, other than the gradual realization that there are no reserve currencies in the world that are worth a darn. The same realization will keep silver in a strong, long-term uptrend. I think people are going to be very surprised, very surprised, when it just goes past $50.