Eric Sprott: "Paper Markets Are A Joke: Prepare For Bullion Prices To Go Supernova"

Tyler Durden's picture

Exclusive Interview by Chris Martenson

Eric Sprott - Paper Markets Are A Joke: Prepare for Bullion Prices to Go Supernova

"I think that the prices will continue higher. I mean the amount of money printing is unbelievable. I just think you have to take that initial stand in terms of buying it. I use the James Turk analogy: just keep dollar averaging. We have gone up eleven years in a row, this year it looks like it will be no exception; I would certainly think next year will be no exception. If we ever have QE3 announced, I think gold and silver will just go absolutely bonkers here. And so I just think you have got to step in there and own it; we’ve had these fears all the way along. You know, $400, and $500 and $700 and $800 dollar gold, everyone was afraid it was a one-time thing. I don’t think it is a one-time thing, I think it is a secular thing. It’s going to carry on for quite a while here until we find some resolution of these problems. And the resolution probably will be some form of default where people just have to expunge debts that cannot be repaid. So, you have got to be in some asset which will not be affected by that."

So predicts Eric Sprott, founder of Sprott Asset Management and famed investor. In this wide-ranging interview, he shares his insights on the precious metals markets - specifically what investors need to be aware of in terms of the way the markets are currently managed (manipulated), the macro outlook for the economy (grim) and the true value of gold and silver (very underpriced; particularly silver).  

Eric sees the current "extend and pretend" intervention by world governments and central banks to prop of a fundamentally flawed baking system, particularly the vast money printing efforts of the past few years, as a ruse that is losing it's influence. Once enough people ask "Why have your money in a bank earning nothing? Why not have it in something that might at least maintain it’s purchasing power?”, the capital flows into the precious metals will dwarf current levels, sending bullion prices much higher.

Those interested in hearing Eric's insights on:

  • why we're in a global secular bear market for most assets classes
  • what the safest investment options are
  • how much precious metals exposure investors should have
  • the key factors that will drive PM prices much higher
  • the mindboggling supply shortage and manipulation within the silver market
  • why there may eventually be two prices for bullion: one for paper and (a much higher one) for physical & how high Eric thinks prices could go

 

should click here to listen to Chris' interview with Eric Sprott (runtime 38m:01s):

 

Or start reading the transcript below:

Chris Martenson: Welcome Eric, it's a real pleasure to have you today.

Eric Sprott: Chris, good to be here and thank you for all the work you are doing in apprising your investors of what's really going on in the world.

Chris Martenson: Oh thank you. We’ve been at it many years and unfortunately much of what I think both you and I saw coming - though unfortunately not enough others along the way - is really coming to pass. If I could, let’s start with your views. You have been advocating and creating investment vehicles for people to own gold and silver for a long time. How did you get to that position and what are your views on owning gold and silver at this point?

Eric Sprott: Sure. Well it all started, Chris, with our studies back in 2001 where we were entering into a secular bear market and wondering how you deal with that. And a typical response would be to own gold and silver, which is what we decided to do. I think the one thing that really tipped us into it was an analysis of the physical supply and demand for gold and some work by Frank Veneroso that suggested things would have to change dramatically in the physical gold market because the central banks were selling four to five hundred tons a year. And as you know, here we are eleven years later and now they are buying four hundred tons a year on balance, and this is in a market where the mines supply only twenty-six hundred tons a year. So that is a huge change that had to take place that Frank identified back then. He also identified that the gold companies would stop hedging. We’ve had the ETF’s come along. So we have had a lot of dramatic changes in the physical balance between supply and demand in gold. And that is really what took us there in 2000; to get actively involved in that particular market.

Chris Martenson: And looking at it today, has anything changed in that analysis? You mentioned a secular bear market, are we still in one and also has anything changed in the fundamental supply/demand equation that has actually tipped it one way or the other, further or less, since the initial analysis you looked at?

Eric Sprott: Sure. Well I do think we are still in the secular bear market and basically what people describe with the phrase “extend and pretend”. And we had the zero interest rate policy, the housing boom, the lending boom, TARP and TALF and all those things which try to delay what naturally should happen. When I look at the headwinds for gold and silver, I really believe that we have been aided and abetted by a lot of these policies, particularly QE1 and QE2 and the various printing mechanisms of the ECB and the Japanese government and almost all governments in the world. So as much as I would not have anticipated those types of developments happening, they have happened and they provide an even stronger headwind for people realizing that currencies are not going to survive and to maintain your purchasing power you have to own precious metals.

Chris Martenson: You know, I too have been surprised by how long all of this has stretched out. If you had told me five years ago - Eric if you had said “Chris, the Federal Government in the U.S. is going to be running a $1.6 trillion dollar deficit and the Federal Reserve is going to monetizing 75% of that and the bond markets will be relatively tame and the dollar will still be roughly where it is at”; I would have said you’re nuts. But here we are. And my view on this is that what we are kicking the can down the road. We have bought some time, - which I am thankful for personally - however the risks are now increasing. And the risk that I have identified that concerns me a lot is that, sooner or later, much is happening in Greece right now where suddenly the world wakes up and says “Hey, wait a minute. They can’t possibly pay that back. And at 22% interest rates on 2-year paper, they really can’t pay that back.” So suddenly the illusion is lifted. We have collectively suddenly gone, “Greece is not solvent. Oh, that’s terrible.” And now we are grappling with that. But that same dynamic can be extended to, I think, any of the governments that you just mentioned. It varies across Europe somewhat, but in Japan and the U.S. there certainly are fundamental mismatches between current productive economic output and the levels of indebtedness. We are printing our way to that. Is there a way that you can see that this could actually be turned around where it all sort of pencils out? Is there a solution to this that does not have to pass through a fiscal crisis and possibly a currency crisis?

Eric Sprott: Well Chris, it is very hard to imagine that happening. And then I look at really what has happened over the last eleven years since we hit the high in that, we basically created a problem in the world of banking business and I always think of banks as being levered 20 to 1. And when your paper assets start to decline, of course it does not take much of a decline to get rid of all the capital. And we have seen that in so many instances whether it is Iceland or Ireland or now the Greek banks. And all the moves that have happened so far, really have been in response to the problems in the banking system. That is why you have TARP and TALF and all those things because the banks basically were losing deposits and somebody had to come in and support them. That is what happened in the UK, it happened in Iceland, it happened in Ireland, it’s happening in Greece as is transpiring right now. And I think the big fear is that you cannot let one banking system go down without an impact on all the other banking systems. So collectively everyone is trying to support the banking system and I think people see through the ruse. And the natural reaction is “Well, why have your money in a bank when you earn nothing, why not have it in something that might at least maintain it’s purchasing power?”

Click here to read the rest of the transcript.

 

Note: listeners interested in the conclusions expressed within this interview will also want to read Chris' recent report on The Screaming Fundamentals For Owning Gold And Silver, which takes a deep dive into the data behind the supply and demand imbalances in the bullion markets.

 

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Michael Victory's picture

 

paper is.. paper.

stack metal and get ready for the end of fiat again.

Watch – Fiat Money & Inflation in France

 

He_Who Carried The Sun's picture

The real money is not where everybody is looking for it!

Ahmeexnal's picture

Paging Mr. Methman:

 

"It only costs 5 bucks to dig an ounce outta the ground".

 

akak's picture

Do not invoke the name of the Cursed One!

eureka's picture

Well then, Sprott must be "the annointed one" - though perhaps in a paralel, timeless universe: Sprott predicted in fall of 2009 and January 2010 that gold would double or tripple or quadrouple "very, very soon". Perhaps years pass in split seconds in Sprott World, or perhaps timing is secondary to overall sentiment. From my perspective all asset classes are elevators going up and down in interrelated, yet fundmentally speaking insane patterns; investors therefore, by definition, are mad dogs, whatever asset they "believe in, for whatever time duration. Personally, I place my peace in productive and creative labors - i.e. real assets, which no one else controls; the "market" is not my God. Fuck the market and sleep well.  

dlmaniac's picture

Prepare for confiscation. One thing you can be 100% sure is that the Mafia, uhhh I mean US government, always kicks the table when their ordinary shenanigans no longer work.

theinebriatedsot's picture

They can try - but who'll 'give it up'? You think people will meekly comply like in the 1933? No chance. And if the "Gestapo Pigs" try to find it....people will just hide it that much better. They'll NEVER attempt confiscation - that would be an admission that their system they've set up has failed, and gold really is worth something. This is why hardly any 'Boobus Americanus' owns any: they still believe the claptrap that "gold is just a commodity" which has been taught for nearly 100 years.

akak's picture

I pretty much agree with you, inebriatedsot.

First off, there was NO "confiscation" of gold back in 1933-34 --- it was a call-in and voluntary surrender of gold instead.  Sure, the federal fascists made the possession and sale of gold illegal, but there were absolutely no door-to-door searches, or any draconian actions of the sort, to grab gold from individuals.  And even in that naively law-abiding era, only 20 to 25% of all the outstanding US gold coins were turned in to the government --- does anyone REALLY believe that the percentage would be higher, or even close to that, today?

Second, having stated the above, I can easily imagine our current federal jackbooted thugs attacking the personal possession of gold (and silver) once again, via either onerous transaction taxes (exempting "legitimate users" of course --- bullion banks, hint hint), or else by outright prohibiting the purchase of precious metals by the public, while still allowing them to hold what they own, or to sell it to dealers, but not to other individuals.  But I think any such measures would be short-lived, as such desperation would probably merely mark the death throes of the current fiat monetary paradigm, and quite possibly the power of the federal government itself.

GeorgeHayduke's picture

"...outright prohibiting the purchase of precious metals by the public, while still allowing them to hold what they own, or to sell it to dealers, but not to other individuals."

I would guess that silver and gold become the money of the underground or "gray" market at that point in time.

Also, I completely agree with you that there will be two levels of law for gold and silver ownership if it comes to that point; one law for the elites and one, more prohibiting, law for the serfs. My guess is they will wrap the law in the flag and add plenty of fear about terr'rism so most peasants will bow down with their usual unquestioning compliance for such a tyranical law. If so it may finally show some folks that the sheople's compliance is as much a part of the problem as as the tyrants. We can only hope.

akak's picture

My guess is they will wrap the law in the flag and add plenty of fear about terr'rism so most peasants will bow down with their usual unquestioning compliance for such a tyranical law.

I am actually rather surprised that we have not by this point seen some much-hyped interception of "terrorists" being apprehended while "smuggling" gold as an integral part of their devious evil-doing --- along with the concurrent demonization of the sale or mere possession of physical gold, and the linking of it to "financial terrorism".  Just wait for it, though.

Unbeliever's picture

They've thought of this ploy; they haven't needed to employ it yet.

hamurobby's picture

The msn was practically touting Libyan gold as terror funding. They could not sterilise Qaddafi's gold like they could Libyas deposits in the banking system. 

disabledvet's picture

Certainly John Law paid the price for his scheme.  It's hard to imagine a "place" as France was "at war continuously" for the entirety of Louis XIV's (was it 70 year?) reign.  By today's standards we would call the 30 years war "total war" for sure, although it's hard not to call the entire age for all intents and purposes "total war." The irony of course is that it ultimately led to Napoleon.  Of all lessons in history i still believe this is a most fundamental one.  But first!....

Hearst's picture

And Germany's hyperinflation led to Hitler.  Is there a trend forming here..?

Transformer's picture

And we have been at war since 1945, if you count the cold war, which cost the same as a real war.  Thats 66 years. 

Oh regional Indian's picture

Hmmmmmmmm.....
Another key 66th anniversary, one we should be paying real attention to, is 16th july, Trinity...
It's still with us.....
ORI

http://aadivaahan.wordpress.com/2011/07/04/a-year-and-a-day-later/

johnnymustardseed's picture

Hi-ho silver away!!!

Badabing's picture

paper = physical a hundred to one. always has, always will.

fixed it

BrianOFlanagan's picture

Repost: paper = physical.  Always has,  always will.  

 

The only thing going supernova is the hype from the Sprott crew.

 

akak's picture

Beat it troll.  Your shilling for the bankster elite is pathetically laughable.

BrianOFlanagan's picture

just giving you the truth, Akak

akak's picture

That's spelled "trollth".

Not to be confused with "trololo":

http://trololololololololololo.com/

Libertarians for Prosperity's picture

Akak - Can you explain to me how the recent change in SIFO rates supports the silver shortage hysteria?

 

akak's picture

WilliamtheRedneckRepugnicantGunslinger,

Can you explain to me why gold AND silver are both up over 400% in the last decade, when the stock market has been flat during that same period (and falling in real terms)?

Libertarians for Prosperity's picture

Wow.  Answering a question with another question!  Are you a politician?

It's ok if you don't know that answer - I already know you don't.  You're just another bitter, goofy, doomer bobble-head who is only capable of puking up the same tired catch-phrases as 95% of the other ZH doomer goons.  You bring nothing but ants to the picnic.

 

 

 

akak's picture

And we all already know that you are the same vicious, dishonest, malicious troll who has been discredited, banned, and returned under yet another new alias here more times than I can count. 

Fuck you.

Badabing's picture

repost: paper = physical a hundred to one. always has, always will.

fixed it again

JW n FL's picture

Lead ='s whatever I want it too!

akak's picture

BrianOTrollAgain,

You're funny when you're an idiot.

But it is always entertaining to see desperate pro-Establishment sheep such as you rage and flail when confronted with the imminent collapse of their beloved status-quo paradigms. 

Sing, O Muse, of the agony of the Great Troll!

Bay of Pigs's picture

Hey akak,

Speaking of trolls, our guy Jeff Christian was on BNN today. Here's what I posted over @ Turd's site after watching him,

Well, he didn't disappoint on his perma bearish stance. He said gold should top out at 1520-25 (July-August), then go down to 1440-1460, but could "easily go down to 1380". His "ceiling" for gold was 1540 with a possible "spike" to 1600.

LOL. Keep up the good work Jeff. You've been dead wrong for ten years, so why change now?

Why this guy gets interviewed at all is beyond me.

 

fonestar's picture

Because Christian and the MSM don't understand why Gold is at $1,500 or ask what is stopping it from going to $10,000.  They don't understand fundamentals.  They don't understand supply and demand.  They sure as hell don't understand the signs of a dying currency!

TheFourthStooge-ing's picture

Why this guy gets interviewed at all is beyond me.

Well, Douggie Kass gets interviewed too, and his predictions regarding gold make those of Christian appear almost reasonable, even though they still fall short of the threshold of sensibility.

Because Christian and the MSM don't understand why Gold is at $1,500 or ask what is stopping it from going to $10,000.  They don't understand fundamentals.  They don't understand supply and demand.  They sure as hell don't understand the signs of a dying currency!

They don't understand that, even though they think they're insiders, they're in line to be shorn along with the rest of the sheep.

(They also don't understand that a squid eating dough in a polyethylene bag is fast and bulbous. Got me?)

 

akak's picture

Thanks for the update BoP!

Yes, as bad as Jeff "100:1" Christian is in his so-called analyses, his record of disingenuous bullshit and outrageously incorrect and misleading disinformation can't hold oa candle to that of Jon "Gold is in a bubble but NOT in a bull market!" Nadler.  ANYONE who dares quote or interview him, at this point in the game, automatically proves themselves to be either part of the Empire of Darkness, or merely an incredibly naive and ignorant idiot.

High Plains Drifter's picture

It is incredible how so many people simply hate metals.  Kind of reminds me of "trader dude"  douchinger.

akak's picture

"Because gold is honest money, it is disliked by dishonest men."

- Ron Paul

madmax1965's picture

Exactly! and the dishonest men in DC are like a bunch of drunk sailors on liberty!

 

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.  There is no safe store of value. - Alan Greenspan 

disabledvet's picture

as I recall there were many sellers of silver pretty much right at the high.  Wasn't Eric Sprott one of them?

Bay of Pigs's picture

Yes, and he took that money (profits) and reinvested in what? Oh, that's right, silver miners.

This Sprott bashing is absurd.

Trolololo....

bruinjoe93's picture

He went from one high beta silver-related investment to a higher beta silver-related investment.  

Iam_Silverman's picture

"as I recall there were many sellers of silver pretty much right at the high."

Yep.  There are those that can see an intermediate top in the market, and are smart enough to act on it.  It doesn't mean that they have abondoned PM's, but why begrudge someone some profit taking?

Hell, even RoboTrader was offering a monster box of Silver at $49 to $50!

BrianOFlanagan's picture

please give me the expected date of that collapse so I can mark it on my calendar.  I'll add it to the long list of failed prophecies from the professional fear mongers.

akak's picture

Ah yes, the oft-repeated Center-Thinkers' Creed:

"It hasn't happened yet, therefore it will never happen at all."

One would think that all of the previously-considered "can't happen" events of the last few years would have cured you center-thinkers of your innate, ignorant and total faith in the status-quo power structure and its associated paradigms.  But alas, center-thinking is almost invariably a terminal illness.

BrianOFlanagan's picture

Keep the faith, oh loyal silver parishioners...

 

 

Missiondweller's picture

Likea 9.0 earthquake hitting japan causing a tidal wave that knocks out a nuclear plant...causing a meltdown. No way. I would never happen!

Midas's picture

Housing never goes down.

The US will never default.

The U$S will always be the reserve currency.

akak's picture

Stocks for the long haul.

The Thousand-Year Reich.

The sun never sets on the British Empire.

Japan has never been defeated by foreigners.

The unsinkable Titanic.

If man were meant to fly, he'd have wings.

Constantinople is impregnable.

Rome is forever.

 

Center-thinking through the ages.

 

Midas's picture

Well played sir...

traderjoe's picture

Yes, gold and silver have been terrible investments over the past, oh, 10 years. The stock market's done way better... /s

mick_richfield's picture

Oh, that's easy little troll!

The Collapse began in August of 2008.