Let’s assume for the sake of argument that Howe and Landis are on to something and that this clandestine gold leasing is a fact. What does it mean for the price of gold? You can find as many answers as you can gold aficionados. They range from the merely bullish to the very bullish to the unbelievably bullish.

Let’s start at the extreme and look at the unbelievably bullish case. These folks believe that Howe and Landis have uncovered only the tip of the iceberg. The superbulls believe that there is no gold in Fort Knox and that the Central Banks only have a fraction of the gold they claim to have. They also believe that the Central Banks will, at some point, demand their gold back from the investment banks who will, in turn, have to buy it on the open market. This will trigger the mother of all short squeezes and send the price of gold to — who knows? I have heard mention of five figure numbers per ounce.

The very bullish point of view simply doesn’t buy into the Fort-Knox-is-empty kind of thinking. These folks believe that there has been some leasing of gold by Central Banks, but they still have plenty left. They believe that gold is mispriced to the low side because of the missing gold, but not to the point of sending the price to the moon. They do believe that the investment banks will be squeezed, though, and that the price rise will be dramatic as the investment banks are forced to cover their short positions in the open market.

The bullish point of view agrees with the very bullish point of view regarding the mispricing of gold, but disagrees when it comes to the investment banks. The merely bullish believe that the Central Banks will let the investment banks off the hook by allowing them to settle their debt in cash rather than gold. And since cash is printed by you-know-who . . . you can figure out the rest.

I personally hold the merely bullish point of view. I believe the investment banks are too wired into the world financial establishment to be left on the hook. Keep in mind that the current Treasury Secretary, Hank Paulson, was Chairman of Goldman Sachs. I do believe there is a deficit in the Central Bank reported gold, but I do not believe that we will see a short squeeze for the ages. (It would be nice to be wrong about that.) I therefore expect the price of gold to rise substantially, but I don’t expect a moon shot.

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