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.

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SilverRhino's picture

 Gold prices are up almost 500 percent since 2000 and almost 1300 percent since the mid-70s. At some point they have to come back down.

IF you were dealing with a pure commodity you might have a point, but you are not.  EVERY fiat currency has structural problems or is being actively debased by their governments.  

When those debt/debasement issues are corrected THEN you will see corrections.   Till then the only corrections you will see will be related to margin requirements changes and/or paper (naked) shorts.

 

ViewfromUndertheBridge's picture

"If Gold prices fail to close at new highs within the next few days, expect this to be a short-term peak if not the long-term top"....this was the last line of the post (of a person who declared they are short gold) on Nov. 10 on SeekingAlpha... you left out both.

If you are short gold, good luck to you, but please don't post someone elses self-serving opinion and leave out pertinent details that don't suit your argument.

I junked you for your content, for your dopey approach and for no paragraphs.

I hope you are double-short gold.

hugomarch's picture

They are already talking about QE3 on cnbc.  I've changed my mind since yesterday.  Silver is going higher.  There's not going to be any pullback...

damnitalready's picture

Could you link?  I couldn't find anything on CNBC referring to another round of QE.

Hephasteus's picture

Ya the bank loan I was after to buy 300 k worth of gold fell through. The bubble is bursting!!! I can't put any more gold on my credit cards. It's bursting!!

It takes a bank to blow a bubble you fooking idiot.

dehdhed's picture

In other words, some bought Gold because they expect deflation and some bought it because they expect inflation – but one of the two is wrong! We can’t have both deflation and inflation

fiat prices will inflate, but priced in gold everything will eventually deflate.   i know it's a hard concept to wrap one's mind around.  i'd ignore everyone calling for a bubble, they don't get it.   they'll get it when it can't be bought at any price.  then they'll say oh yeah ... doiee, how could i forget the golden rule - he who has the gold rules.

StychoKiller's picture

These bubble arguments are always equivalent to asking why anyone is so stupid as to buy insurance -- look!  There's some zombies with matches and a gasoline can -- hope they don't find your house!

Client 9's picture

Btw, check out your hero Sprott's 5 year stock performance.  Not so hot:

http://www.bloomberg.com/apps/quote?ticker=SII:CN

dehdhed's picture

now i think you lost the little credibility you may have had left.  you've basically compared an investment in gold to the share price of something like charles scwab.   i don't know who you work for but it's obvious you're getting desperate.

Bull v. Bear's picture

Corridor Resources Inc. getting butt slammed today...

Caviar Emptor's picture

It's not so much that Gold and Silver are rising. The astute observer knows that it's the floor that's sinking. Paper currency is in the early stages of a crisis: the first stage was over-leverage, followed by the crisis response which was debasement through debt monetization. Now we're entering the beginnings of the next phase: the crisis of confidence. A rising tide of people, most educated people, are inching toward the exit and hiding more and more paper in Gold and silver. They're scared. They're right. Now that critical metrics have been reached (debt/GDP) and critical lines in the sand have been breached (bailing out once 'solid' banks and entire nations), and credibility of central banks gets undermined more and more on a daily basis, there's a Pinocchio effect (Ben last night: we would NEVER print any money....read my lips!) . 

People of average means ask me how to buy gold and silver, how to store it and where to get it. They're sure they want it. 

Client 9's picture

and true to your name I presume you tell me that it's all just another scam/speculative bubble, that they've missed the big runup and are exposed to perhaps a bigger bubble that the one that preceded it, and that they're best bet is really buying TIPS?

qussl3's picture

Negative real rates, monetization of deficits in the US, EU, soon Japan.

"Creative" accounting rampant, managed earnings the norm.

It's no wonder that objective stores of value are appreciating relative to everything else.

Gold and silver will be in a bubble when the sheep are willing to trade prime real estate for pieces of bullion.

Client 9's picture

Prime real estate is real value and impossible to acquire. Gold is for fools who like to follow the herd.  Buy why the cover of the WSJ tells you to!  Soros and Paulson will get out and leave you holding the bag in the blink of an eye!

Caviar Emptor's picture

Same tune, different day.....

What if you make 50% on real estate and prices have doubled? What if prices double AND stocks get dumped by Soros and Paulson like in 2008 and 2000?

ViewfromUndertheBridge's picture

ha ha...you are short. The WSJ was a balanced article and certainly not exhorting people to buy gold. They included a warning from JP Morgan.

Ummm...under 1% of assets in gold today, 1980 was somewhere around 27%...where is this herd you speak of.

Client 9 is Johnny Bravo, welcome back.

Client 9's picture

I'm only short by not buying it. I don't dabble in speculation. Too risky.  I did on my way to acquiring wealth but now I'm just trying to preserve it.  I do know that the masses get slaughtered.  Monetizing the debt may have pushed it up somewhat since 2008 but not to this extent.  No, this is pure speculation by the retail class.  Same as the dotcom bubble. 

Prime real estate (unlevered) pays you.  What does gold do for you, assuming you don't see the global financial landscape completely collapsing?

MichaelNY's picture

Prime real estate (unlevered) pays you, until it is vacated.  Then it costs you.  And I junked you for being a fool.

greased up deaf guy's picture

please tell us the price at which you opened your short position so we know where to point and laugh in the coming weeks and months.

prime real estate pays you? does it pay you enough to cover the taxes owed?

dehdhed's picture

i'm just glad there are still people like this out there.  could you imagine where gold would be if everyone understood?   it takes a long time for me to convince my loved ones to keep stacking and these kind of people just buy us more time.   i've often wondered what fool was selling the bars i was buying.  this guy helps me to not feel sorry for them anymore.

Client 9's picture
Too much LSD deadhead: http://www.ft.com/cms/s/0/63f30036-da20-11df-bdd7-00144feabdc0.html#axzz...

Few silver linings when gold bubble bursts

By Mark Williams

Published: October 17 2010 20:37 | Last updated: October 17 2010 20:37

Beware of bubbles. Tulips, the dotcom boom and pre-credit crunch real estate have a lot in common; they are assets that were in vogue, became overbought and eventually fell to earth. And now it’s gold.

StychoKiller's picture

Bottom line:  Paper, even high-quality linen paper (with pretty pictures on it!), is only worth around $85/Ton!  Sell me your Gold and Silver, thanks.

Prejudice in Fancy Dress's picture

Client 9, you can take them to the water but you cant make them drink it. 

Caviar Emptor's picture

Ummmm....nope!It's not a bubble at all. It's not so much that people are speculating in PMs so much as currencies are losing value. Ask yourself, if almost EVERY major currency is dropping versus gold but not relative to one another, what does that spell? Crisis of confidence in global financial accords and management aka the 'global Ponzi' aka the post-Bretton Woods world. 

Ordinary People see it as "playing defense" against such very concrete things as inflation (which is already here). Wealthy people see it as that plus a hedge against debasement of their currency which would erode their wealth. Others seek PMs to protect their buying power. Central banks are worried about the dollar losing status as global reserve currency. 

But we're entering a phase where many want insurance against the central bankers screwing it all up. What they hear from them makes less and less sense. They feel their buying power diminishing fast. 

samsara's picture

The astute observer knows that it's the floor that's sinking.

The analogy I use with non-financial astute friends is this.

"Picture 6 or 8 skydivers holding hands, falling,  If one bundles up into a ball, he drops faster then the rest, If one spreads out with a little webbing, he raises about the others(falling slower)"

Well the skydivers are all fiat currencies.  They are ALL going to zero. One may be worth more than the others for the moment(the spread out one), and one might be worth less than the others(the one tucked into a ball).

 

 

 

Caveman93's picture

Let's see, faith in "Bennie Bucks" or faith in something which has never gone to zero....hard ass choice ain't it?

CustomersMan's picture

          Patience is A Virtue Now

 

In markets like this, patience is king. Once you've made a well thought out decision, its often difficult to just sit back and wait. Yet this is percisely what is needed.

 

That is why owning physical is also such a gift. If you own the silver you are not tempted to run down and cash it out. You need to make some arrangements, this is why the stamped envelope to the cash4gold system works for them. They want to make it as easy as possible for you to sell.

 

Lets say we get a $25 spike through the old high. If its easy to sell, thats just what many people would do, and never get the right price to get back in. BIG MISTAKE.

 

A breakout to new highs is a strong position, exactly the time to buy.

 

Talking from experience.

hugomarch's picture

Oriental gal/newscaster on cnbc just asked, "Bernake indicates economy is not good. Why would silver go up?"  Misdirection or is she clueless?

Client 9's picture

The correct term is Asian.  Oriental is not politically correct. 

Upswaller's picture

Who gives a crap about being politically correct?  My sister happens to be adopted from Korea and terms herself "oriental."  Asia is on big ass continent.

StychoKiller's picture

And that would be because...? (Some of us here are dis-oriented)

hugomarch's picture

The last time I bought an ounce of silver it cost me $4, including transaction cost. 

Zeroexperience2010's picture

Just for info for our German residents: it is still possible to rent safety deposit boxes at banks in Frankfurt/Main, just checked last week.

A study by the "RESEARCH CENTER FOR FINANCIAL SERVICES
STEINBEIS-HOCHSCHULE BERLIN" showed that Germans (the people, not the government) owned around 7500 metric tons of physical gold (jewelry, coins,...) roughly twice as much as the government is supposed to have.

FreedomGuy's picture

Germans are smart. Americans need to do the same. I'd like to overrun all the JP shorts and oversold bullion paper with physical delivery.

Germans make damn good cars, too. So, I hope all their automakers are stocking PM's and preparing to price their cars in them.

Fearless Rick's picture

If gold hits $3000, at just a 20-1 ratio silver will be $60. I see an easy double and, if the worst-case scenarios hit the fiats, then a 10-bagger from here through 2015 is a distinct possibility.

rosiescenario's picture

FYI...here's a tout on a stock I have owned for years and in which Sprott may bow be taking a position...Impact Silver...an actual operating company sitting on very promising reserves...do your own d/d.