Eric Sprott

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">Driving the sentiment was the report that U.S. jobless benefits decreased to their lowest rate since 2007. Philadelphia Fed President Charles Plosser forecasted that day unemployment will drop to 7% by December 2013 and he favours reducing the Fed’s $85 billion monthly bond purchases next month. Plosser however has no vote on Fed policy this year.

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">While hedge funds are seeing outflows of $20.8 billion from gold funds this year, BlackRock Inc. the world’ biggest money manager is still bullish, reported Bloomberg.

Manufacturing data in the last several months has suggested that economic growth around the world is slowing. However, China’s export growth surprised the market this week and unexpectedly accelerated in April, even as shipments to the U.S. and Europe fell. This has created a conundrum for analysts and market watchers. How can China be growing while the countries that purchase its exports are slowing? As we noted earlier, the numbers don’t add up. Many analysts have attributed China’s increasing imports as signs of a healthy manufacturing sector, or increasing investments in infrastructure and property. Our simple analysis shows that more than one third of the increase in imports is due to China’s increasing gold consumption. This new gold buying could have a significant impact on Chinese import statistics and force analysts to reconsider the strength of the Chinese domestic economy.

The legal claims on physical gold far exceed the amount of physical gold that the banks actually have by a very, very wide margin.  And right now the bankers are scared out of their wits because their warehouses are being drained of physical gold at a frightening rate.  So what happens when their physical gold is gone but they still have lots and lots of people with legal claims to gold?  When that moment arrives, it will represent the end of the paper gold scam. Many believe that the recent takedown of the price of paper gold was a desperate attempt by the bankers to put off that day of reckoning, but it appears to have greatly backfired on them.  Instead of cooling off demand for precious metals, it has unleashed a massive "gold rush" all over the globe. This is creating havoc in the financial community, and at least one major international bank has already declared that it will only be settling those accounts in cash from now on.  The paper gold scam is starting to unravel, and by the time this is all over it is going to be a complete and total nightmare for global financial markets. For years it has been widely known that the promises that banks have made regarding their gold far exceed their actual ability to deliver, but we have never reached a moment of such crisis before.

“If there is a risk in a bank, our first question should be: ‘Ok, what are you the bank going to do about that? What can you do to recapitalise yourself?’ If the bank can’t do it, then we’ll talk to the shareholders and the bondholders. We’ll ask them to contribute in recapitalising the bank. And if necessary the uninsured deposit holders: ‘What can you do in order to save your own banks?’” – Jeroen Dijsselbloem, March 26, 2013 ¹

We are currently in an environment where policy makers are intent on devaluing their currencies in an effort to create growth. Real rates continue to stay negative in most of the developed world. Every marginal dollar of debt that is created is producing lower and lower amounts of growth. In a world overwhelmed by mountains of debt and economic growth which is sub-par at best, precious metals and real assets can act as insurance against the stupidity of policy makers. The evidence pointing towards the suppression of the gold price is becoming increasingly apparent. Don’t be the last person to figure this out! The current sell-off in gold should be viewed not with extreme trepidation but as an unbelievable opportunity to buy the metal at an artificially low value.

Eric Sprott's findings support the growing meme that there is a massive bullion transfer from West to East. This should particularly concern those in the U.S., EU and Canada as his suspicion is that, increasingly, it's monetary gold that is being sold. "We are well into the financial crisis. Everyone’s trying to keep it together, even though it would appear from the reading of the economy things are not going well at all here. And everyone's ignoring things. But I think, in their hearts, the Central Bankers must know what they’re doing is totally irresponsible. And the tell of that irresponsibility – which is the debasing of the currencies – is the fact that real things will go up in value. This should be reflected in the price of gold and silver." For precious metals holders licking their wounds from the carnage of the past several months , this note offers both new insights and sound reminders of the long-term reasons for owning gold and silver.

In this candid discussion, precious metals experts Eric Sprott, John Embry and Rick Rule discuss a wide range of topics related to precious metals investing.

The purpose of asset purchases by the Fed might no longer be improvements in the real economy, but rather a more subtle financing of U.S. government deficits. However, in the long run, expanding the money supply inevitably leads to inflationary pressures. Luckily for the Fed and the U.S. government, there is so much slack in the labour market that inflation might be years away. And, if we are right about the long run unemployment rate being structurally higher, then the Fed has all the room it needs to continue Quantitative Easing (QE) to infinity. This might allow them to continue to hide the true financial position of the government for many years to come. Nonetheless, the rising GAAP deficit and the sheer size of the U.S. Federal Government’s liabilities to its citizens makes it clear that one day or another, services (health care, social security) will have to be cut. Financial alchemy can hide reality, but it does not provide any tangible services. Europe’s (unresolved) experience with its debt crisis provides an insightful window into the future. Austerity measures in Ireland, Portugal, Spain and Greece have caused tremendous pain to their citizens (25% unemployment rates) and wreaked havoc in their economies (double digit retail sales declines). Are we going to ignore the obvious?

The platinum group of metals (PGMs) have received some perhaps unwarranted attention in recent weeks as the 'coin' idiocy came and went; but, it is noteworthy, as Eric Sprott points out that with demand rising and supply under pressure, the outlook for investment in physical platinum and palladium is increasingly compelling. The following infographic (and various supply and demand dynamics) provides a succinct picture of what these metals are used for, where they are produced, and the supply/demand imbalances.

With gold prices dropping (notably divergent from the ever expanding global central bank balance sheets) but record-breaking levels of physical gold being purchased, we continue to reflect on the other 'Great Rotation' that we suspect is occurring as the New Year begins - that from paper gold to physical gold. Who better to discuss the nuances of this dilemma than Eric Sprott as he outlines to TrimTabs' Charles Biderman the relative strengths and weaknesses of ETFs like GLD and SLV, physical-based ETFs such as PHYS and PSLV, and physical holdings themselves. While the new meme is that the Fed may be considering pulling back (on its 'flow') sooner than expected, reality is far different (as Bill Gross recently agreed with us) and that fact makes the following brief clip even more compelling.

You truly have to be mentally challenged if you follow the gold/silver market action and cannot appreciate something is very amiss, as per the confused Mitsui gold people, as brought to your attention the other day.

For the time being, the silver price is essentially set in the paper market where the daily average trade on the Comex is approximately 300 million ounces. An outrageous number when you compare it to the daily mine production of about 2 million ounces. As Bart Chilton, Commissioner of the Commodity Futures Trading Commission stated on October 26, 2010, “I believe there have been repeated attempts to influence prices in silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act have taken place in the silver market and any such violation of the law in this regard should be prosecuted.” Which brings us back to the phrase “Follow the money.” In our view, it is almost inconceivable that investors would allocate as many dollars to silver as they would to gold, but that is what the data shows. The silver investment market is very small. While the dollar value of gold in the world approaches $9 trillion, the value of silver in the forms of jewelry, coins, bars and silverware is estimated at around $150 billion (5 billion ounces at $30 per ounce). This is a ratio of 60:1 in dollar terms. How long can investors continue to buy silver at the current ratios when the availability for investment is only 3:1? We are surprised that the price of silver has remained at such a depressed level compared to gold. Historically, the price ratio between gold and silver has been 16:1, when both were currencies. Today the ratio is 55:1, so what are the numbers telling us? We believe this is one of those times when smart investors will be well rewarded to “Follow the money.”

Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).

The Basel Committee on Banking Supervision is an exclusive and somewhat mysterious entity that issues banking guidelines for the world’s largest financial institutions. The Committee’s latest ‘framework’, is referred to as “Basel III”. The regulators have stubbornly held to the view that AAA-government securities constitute the bulk of those high quality assets, even as the rest of the financial world increasingly realizes they are anything but that. As banks move forward in their Basel III compliance efforts, they will be forced to buy ever-increasing amounts of AAA-rated government bonds to meet liquidity and capital ratios. Add to this the additional demand for bonds from governments themselves through various Quantitative Easing programs, and we may soon have a situation where government bond yields are so low that they simply make no sense to hold at all. This is where gold comes into play. If the Basel Committee decides to grant gold a favourable liquidity profile under its proposed Basel III framework, it will open the door for gold to compete with cash and government bonds on bank balance sheets – and provide banks with an asset that actually has the chance to appreciate. The world’s non-Western central banks have already embraced this concept with their foreign exchange reserves, which are vulnerable to erosion from ‘Central Planning’ printing programs. After all – if the banks are ultimately interested in restoring stability and confidence, they could do worse than holding an asset that has gone up by an average of 17% per year for the last 12 years and represented ‘sound money’ throughout history.

China Quietly Becoming Gold Superpower