As Silver Prepares To Take Out $30, Here Is Why Eric Sprott Believes The Metal Is Going Much Higher

Tyler Durden's picture

As silver attempts to break $30/oz yet again after the LBMA woke up and rejected an earlier attempt to take out the critical barrier, it is appropriate to present the most recent interview with Eric Sprott (by the Globe and Mail): the man who one of few, and very much against the conventional wisdom grain, called the move in precious metals many years ago, and so far, has been spot on. The summary on why the much maligned PM bubble is not even close yet: "I think gold is the reserve currency today. There is not a currency in
the world that it hasn’t appreciated against by at least 300 per cent.
And it has beaten every stock market. You can’t even rent a safety
deposit box in Germany because they are all full of gold and silver … I
am pretty convinced that gold will go a lot higher because it is
under-owned as only 1 per cent of people’s money is in it. It could go
to $2,000 an ounce. I could imagine it at $5,000. I am not giving a time
frame on that, but I could certainly see that happening. But the real
story now is silver." And on silver: "Gold has traded at a ratio of 16-to-1 to silver in terms of price, but
today it trades in the range of 50 to 1. I think the gold-to-silver
ratio is going to go back to 16 to 1 given the passage of time, say
three to five years. And I bet you that silver overshoots. The
gold-to-silver ratio may even get down to 10 to 1. I believe that the
price of silver has been suppressed."

Key excerpts from the interview:

Why did you become bearish just before the Nasdaq stock market imploded in 2000?

We had an 18-year bull market from 1982 to 2000. This is about the
average length. You could tell from the almost insanity of the market at
the time that it had to be over … We were valuing stocks at 100 times
sales in the Internet boom. It was ridiculous.

How long do you expect a bear market will last?

I have always thought it would be a long bear market – about 15 to 18
years. It started in 2000, but it might even be longer this time because
the powers-that-be keep manipulating the financial market. Having a
zero interest rate policy is manipulation. Having quantitative easing is
manipulation of what the market would otherwise do. …They are delaying
the liquidation phase of a bear market. Almost all governments keep
bailing out their financial systems.

You have been a bull on gold from the get-go. Is its price over $1,350 (U.S.) unfolding as you expected?

It’s been the investment of the decade. When I bought gold, I was buying
gold to hold [as a long-term investment]. As it turned out, it
quintupled. I didn’t think it would go that far because no none would
have imagined that the central banks and governments would get
themselves in a position where they are printing money.

The printing of money makes gold more valuable. You don’t have to be a
genius to figure this out. The Johnny-come-latelies – the Paulsons,
Einhorns and Soros – all figured out, when [the Fed announced the first
round of quantitative easing], that they should own gold. It becomes
more obvious every day as you see these financial challenges that we
have in Europe.

How high will gold go?

I think gold is the reserve currency today. There is not a currency in
the world that it hasn’t appreciated against by at least 300 per cent.
And it has beaten every stock market. You can’t even rent a safety
deposit box in Germany because they are all full of gold and silver … I
am pretty convinced that gold will go a lot higher because it is
under-owned as only 1 per cent of people’s money is in it. It could go
to $2,000 an ounce. I could imagine it at $5,000. I am not giving a time
frame on that, but I could certainly see that happening. But the real
story now is silver (SI-FT29.750.481.65%).

Why are you more bullish on that metal?

Gold has traded at a ratio of 16-to-1 to silver in terms of price, but
today it trades in the range of 50 to 1. I think the gold-to-silver
ratio is going to go back to 16 to 1 given the passage of time, say
three to five years. And I bet you that silver overshoots. The
gold-to-silver ratio may even get down to 10 to 1. I believe that the
price of silver has been suppressed.

Do you like base metal stocks because of China’s growing demand?

I wouldn’t be a buyer today. If interest rates go up in Europe and you
have these policies of contraction, how much can China bear? I don't
believe in the growth of the developed countries, and China needs the
developed countries to buy goods.

Sprott Canadian Equity, your mutual fund, has an impressive
20-per-cent annualized return over the same 10 years as your hedge fund.
Why is that?

It was hard for me to imagine that it was possible. As it turned out, I
was wrong. You can prosper in a bear market in a long-only fund. It has
done very well because we just decided to keep pushing into precious
metals … Whatever I own in my long-only fund is exactly the longs that I
own in the same proportion as my hedge fund. It’s only the shorts that
are different. [The shorts] are all in U.S. stocks with a focus on
financials, including major U.S. banks and brokers, consumer
discretionary and housing.

How much of your wealth outside of Sprott Inc. shares are in bullion and precious metals stocks?

I only own funds and gold and silver. I am probably 90 per cent in precious metals personally. And I don’t lose sleep over it.

This interview has been edited and condensed.

Sprott Favourites

Sprott Hedge LP does not reveal its positions monthly, but it holds the
same long-only stocks as Sprott Canadian Equity, also managed by Eric
Sprott. Here were the top 10 holdings in the mutual fund at Oct. 31.

Silver bullion

Gold bullion

Cash and short-term investments

Gold Wheaton Gold Corp.

Yukon-Nevada Gold Corp.

East Asia Minerals Corp.

Corridor Resources Inc.

Sterling Resources Ltd.

CGA Mining Ltd.

Timmins Gold Corp.