Eric Sprott - The Price of Silver Should be $110 to $120 Today
With the Dow down almost 500 and gold surging above $1,825, today King World News interviewed billionaire Eric Sprott, Chairman of the $10 billion strong Sprott Asset Management to get his take on the action and what he is doing with his own money. When asked about his charitable foundation selling gold and buying more physical silver Sprott stated, “We’ve put a notice in that we are going to sell two million shares of the Sprott Physical Trust, which would generate something like $32 million of proceeds, and it’s my intention to move that into (physical) silver. As you know I have opined very often that I think silver should trade at a 16/1 ratio to gold. That would imply a price today of something like $110 or $120, (and today) it’s $40.

...The availability in dollar terms of gold is 100 times that of silver, so you can’t keep buying at a one to one ratio without something giving here. As long as people keep buying it you know the price has to go up, there is very limited supply. I think Comex has something like 27 million ounces (available for purchase), which is all of one billion dollars. What is one billion dollars these days? I mean there’s probably 500 different organizations that could clean them out.”

Sprott expects another banking crisis. He commented, “People start to worry about a country whether it’s Spain or Portugal or Italy or maybe now France and anybody who’s semi-intelligent would say to themselves, ‘Well, if I can take my money out of a Spanish bank and put it in a German bank or a Swiss bank or a Canadian bank or something like that, why wouldn’t I do it?’

But you can certainly sense that this money is flying around the world. We had an example of that where a week ago I think it was Bank of New York Mellon said, ‘We’ve got so much money in here we want to start charging for people to put money in the bank.’ Now ultimately they didn’t go through with it, but it was symptomatic of what was happening, the money was just pouring out of Europe.

Of course as it pours out of the bank, the banks who are levered twenty to one, they have all of these paper assets whether it’s stocks or bonds, mortgages or whatever and the depositor wants his money and theoretically they have to sell something. But there’s no one to sell it to. Nobody wants to buy any of those assets, so the governments have to step in and support them....Essentially we have what I would call a bank run that’s been going on, it happened in Iceland, it happened in Ireland, it happened in England, Greece, now it’s gone to Spain, Portugal and Italy.”

When asked about the GATA conference in London and Jim Sinclair’s speech in particular Sprott responded, “Well it was very special for me to see James Sinclair and meet James Sinclair who I had never met, but I go to his website (jsmineset.com) very often. I mean I think it was one of the greatest calls of all-time which I commented on in my own speech there, that anybody who in 2000 that would have suggested gold would go to $1,650, to be able to triumphantly come to GATA and the price was $1,650 was absolutely incredible and I think it inspired everyone.

To add icing to the cake of course, Jim suggested that if gold went through $1,764, it would start entering a parabolic phase and would go to $12,000. But what an incredible call ($1,650), it was an honor to be there.”

When asked about gold Sprott stated, “I’ve always thought that the ultimate destiny for gold and the ultimate reason for owning it is that people don’t understand, you take a risk when you own any paper asset including a bank deposit and perhaps a bank deposit is the riskiest of all because that money has been levered in the system.

You can see us in a situation where people are losing confidence in paper currencies....

“You can almost sense that we are going to go back to a precious metals backed currency. Just think of the demand there would be if these two products (gold and silver) had to go into circulation and you need this physical commodity. So I have no doubt that these prices will continue to escalate.”

When asked where the gold is coming from to supply market demand Sprott replied, “Well, it’s a great question and I struggle with it immensely, I struggle with it more every day. Central banks bought approximately 200 tons of gold in the first half of this year. One can assume that they will probably buy 200 tons in the second half of the year which would be 400 tons (total). Last year the IMF sold 400 tons and they haven’t sold any this year. We have in gold a 4,000 ton per year market, which is 2,600 tons of produced mined gold and about 1,400 tons of recycled gold.

So that 800 ton change just at the central bank level would mean a 20% difference in supply/demand this year vs last year. But there is no extra supply. So it always begs the question, where is the gold coming from? As I just read today, the World Gold Council came out and said Chinese demand grew 38% in the second quarter and Indian demand grew 25%. I was reading today where the Dubai gold sellers say the business is up 100% and I keep wondering well, how can we keep having all of these big numbers, supply is flat, where is the gold coming from?

It probably takes me more today than any other time in my life to the GATA view that banks have all along both overtly and without transparency just been selling gold. And I think that they have to be selling gold now to keep things under control. So I don’t know where all of this gold is coming from that everyone is buying because every time I look at a data point in gold it’s plus 20%, plus 30%, plus 100% and you turn around and look at gold supply is (only) up 2% per year. So I have no idea where the gold is coming from, but somebody is supplying this market that is doing it surreptitiously.”