Monday, March 7, 2011

Eric Sprott on Gold and Silver Investing

This past weekend Eric Sprott, CEO of Sprott Asset Management gave a presentation at the Prospectors and Developers Conference in Toronto.

Sprott thinks that it is possible that silver could triple over the next few years.

Since the start of 2011, silver prices have gone parabolic surging almost 20%. Earlier in 2010, Sprott predicted that silver could hit $50 in 2011.

Sprott's thesis is based on investment demand and current silver shortages.

On the demand side of the equation Sprott thinks that Asian investment demand will drive silver prices higher. China imported 112 million ounces in 2010 yet in 2005 China was a net exporter of 100 million ounces.

On the supply side, Sprott has observed signals that the physical silver market has no inventory.

COMEX holds only 106mm ounces of silver which would cover 21,000 contracts yet there are more than 137,000 silver contracts outstanding. If 15% of silver long holders decide to take delivery of physical silver, a massive short squeeze would result.

The final part of Sprott's thesis is that the gold to silver ratio is at historic lows despite the fact that silver has rocketed higher in recent months.

"Historically silver has traded in a ratio to gold of 16:1. That ratio has not been effective in the last 20-30 years. The ratio today is 40:1 and I think it is going to 16:1 and in the next 3-5 years I could see silver going to $100/oz."

What's your position on gold and silver? Is just a shiny hunk of metal or something of intrinsic value that is at worst a real currency.


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  2. I have a client for whom I have bought SLV and he keeps wanting more and it is frankly scaring me. Maybe this guys right,

  3. I own a little SLV myself, would like to buy more, but the rapid run-up in price scares me too.

  4. I'm done buying physical silver for now. I loaded up when it was at 13 to 15/oz. Silver mining companies are another story though, there's still room to run.

    Eric Sprott is a notorious silver bull, and as the mover behind the ETF PHYS, he well should be.

  5. Thanks for that piece of info. I didn't realize Sprott was the ETF sponsor behind the physical Canadian precious metal shares. That would explain his bullishness. Of course, he may also be right in being bullish. Only time will tell.

  6. That was an excellent summary of Sprott's position. I am a big silver bull and have been since 2002. I used to sell gold and silver, although I quit that business in 2007.

    In my opinion, we still have a long way to go. The public is just starting to get interested in silver. The 1980 peak for silver was $50, but the inflation adjusted top is $134 (if you believe the Fed's numbers). The US Mint stopped production of Eagle coins again because they couldn't find enough silver blanks.

    The price is going up fast, but that is likely caused by a short squeeze. I expect later this year we will have a particularly nasty correction, and then silver will resume it's upward climb.

    I personally stay away from SLV and other precious metal ETFs. Their prospectuses admit that they are a derivative of metal, and that much of the bullion "holdings" are never audited.