Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Central Bankers Are Gaming Gold

Commodities / Gold and Silver 2013 Mar 05, 2013 - 10:10 AM GMT

By: The_Gold_Report

Commodities

Some people may look at the stock market and see economic recovery. Eric Sprott of Sprott Asset Management and Sprott Money looks at myriad other economic indicators and sees an economy still in decline. Despite his suspicions that central banks are keeping gold prices artificially low, he tells The Gold Report that he favors gold, platinum, palladium and especially silver, over the near and long term.

The Gold Report: The price of gold has dipped under $1,600/ounce ($1,600/oz); silver is below $30/oz. Is this a case of living by the sword and dying by the sword, where precious metals prices only go up in a bad economy and are doomed to languish when things go well?


Eric Sprott: That is an interesting question because I do not know what it means to go well these days. I see things going from bad to worse economically, and so do many others. Walmart just announced that January 2013 was a lousy month and its start to February was its worst in years. Apple's iPhone manufacturer Foxconn just announced a hiring freeze in China because of a decline in iPhone production. Italian industrial production new orders were down 15%. You can feel the recessionary malaise setting in.

Weakness begets weakness, and there are only two ways to stop weakness: fiscal policy and monetary policy.

No one has any room for aggressive fiscal policy anymore. The U.S. is looking at sequestration. We just had a 2% tax increase. There is nothing left in the cupboard for fiscal stimulation. On the monetary side, we are at 0% interest rates, and we are printing money nonstop.

We are entering a period of steady decline in economic well-being, notwithstanding the suggestions of central planners that H2/13 will be great. They always say the second half will be great because they know the first half will not be.

TGR: In your opinion, what are the most important indicators of what is really happening in the economy?

ES: There are many indicators: rail car loadings, car sales, personal income, consumer sentiment, to name a few.

Granted, most of the consumer sentiment numbers have been OK, but a lot of those numbers follow in line with the stock market. Anyone who thinks that 70% of the population is better off has to be mistaken. The 2% increase in withholdings on someone's salary implies a much bigger impact on his or her discretionary spending because a lot of spending is dedicated to things that do not change: mortgage payments, insurance costs, the cable bill. When you knock 2% off the top, it could affect discretionary spending by 4–5%.

The one indicator you do not want to watch is the stock market because it is part of the financial fabric that the central planners are desperately trying to hold together. Not a week goes by without a crisis. Four weeks ago, it was Banco Monte dei Paschi. Three weeks ago, the third largest bank in the Netherlands had to be bailed out. Last week, Peugeot had to get a loan from the European Central Bank. Now the largest homebuilder in Spain has declared bankruptcy.

TGR: Which takes us back to the first question: If there is no recovery and the economy is still languishing, why did gold and silver both drop last week?

ES: This will sound like a conspiracy theory, but unusual things are happening in the gold and silver markets.

For example, on Feb. 19, nearly an entire year's supply of gold traded on the Comex in a single day. The same volume of silver trading happened on the commodities exchange. You and I both know that the people selling that much metal cannot deliver it because it is just not available. Yet somehow they are out there, pounding down these contracts and keeping the price suppressed.

I would hypothesize that the central bankers know their policy of printing money is the most irresponsible thing imaginable, and they are suppressing gold and silver prices to hide their irresponsibility. When one is printing that much money, gold and silver prices are the first things you would expect to rise. If we saw gold going to $2,000/oz, the price of oil would probably go to a new high and the price of agricultural commodities would go up. Then you would have a huge inflation problem on your hands.

Based on my research, I believe the Western central banks have been surreptitiously supplying gold to the market. I say this because the demands I see for physical gold are way beyond the supply of gold. The annual gold supply has not changed in 12 years, and demand just keeps increasing from China, India, the U.S. Mint and silver and gold coin sales; even the non-Western central banks are buying gold. Where is this gold coming from? I think the Western central banks are selling gold to keep the lid on the price so everyone thinks their monetary policies are benign. Nothing could be farther from the truth.

TGR: But wasn't Feb. 15's volume blamed in part on reports of a few large fund managers selling their gold exchange-traded funds (ETFs).

ES: That may very well have happened. A lot of these paper things trade together, and the gold in the ETFs is paper gold at best. I have serious reservations about whether there is actual physical gold in the gold ETFs.

When I see China buying 95 tons of gold in a month and I know that the world's monthly production is only 180 tons, that represents half the gold. India bought 100 tons in January, more than 50% of the gold supply. Between China and India, they bought 100% of the available gold. So, where did the gold bought by the rest of the world come from? From the Western central banks, as far as I'm concerned.

TGR: Does this policy of suppressing the price of precious metals hold for silver, platinum and palladium as well and how is it affecting supply and demand in those metals?

ES: The monetary authorities have never really focused on platinum and palladium because they are more industrial metals and very few people watch their prices. We watch them now because we have a public platinum and palladium trust.

The platinum price has gone up and the paper markets are starting to get involved. I suspect that is because there are shortages of platinum and palladium. If their prices skyrocket, it might kick over into silver and gold. There are people willing to sell contracts for platinum and palladium, even though there will be shortages of both this year. It seems ridiculous to be shorting platinum and palladium, but these misplaced bets were probably placed for a reason: they do not want metals to look as if they could knock the cover off the ball and reveal what the real money printing has caused.

TGR: But would you not expect platinum and palladium to track with the economy and go up in a recovery, while gold would not do as well?

ES: Gold is more of an investment vehicle. About 90% of all gold produced each year is used for investment. And, yes, a lot of platinum and palladium are used for industrial purposes. The same is true of silver. When there is not very much available for investment, the investment demand for silver, platinum and palladium will make the difference.

In my view of the economy, industrial demand might decrease. But if that happens, we would go right back to the unresolved problem of all this outstanding debt. In a weak economy, people start questioning the value of the credits of the outstanding loans. We go back into the same banking crisis that we had in 2008, in which the banks would have failed had the government not stepped in. Now, government intervention is a regular occurrence.

TGR: You invest in equities and physical metals through your various funds and trusts. What do you consider to be a balanced portfolio in today's world?

ES: You must have, at a minimum, 10% in gold and silver. I probably have 80% of my money in gold and silver. For my funds, I have 80% in gold and silver and equities.

Did you know that gold and gold shares represent 1% of all financial assets today? Some very mainstream people have come out in favor of gold recently: Bill Gross at PIMCO, Ray Dalio at Bridgewater Associates and Ned Davis Research, for example.

TGR: How do you adjust your portfolio based on what is happening in the world?

ES: I do not adjust my portfolio. I take a long-term view of gold and silver. When I first got in the gold and silver markets, I could see that there should be a supply shortage. I never dreamed of the tailwinds provided by money printing and bank runs.

Your readers should ask themselves if, in a weakened economy, they would rather own a U.S. bond that yields 2%, a stock trading at a multiple of 15 or gold and silver, which are in bull markets already and undoubtedly will be up at the end of the year? The answer should be obvious.

TGR: What balance do you strike between the physical metal, the junior companies and the producing gold and silver companies?

ES: Our funds probably own one-third of their precious metal assets in physical bullion. Of course, we have $5 billion ($5B) in funds dedicated 100% to physical assets.

In the funds I manage, I am about one-third physical, one-third gold equities and one-third silver equities. Silver equity is way overweighted because the number of silver equities available is very small.

I think silver will outperform gold this year and for the next 10 years. I think silver should trade at a 16 to 1 ratio to gold; in other words, if gold is $1,600/oz, silver should be $100/oz; if gold goes up to $3,200/oz, silver should go to $200/oz. I am way more inclined to be involved in the silver space than the gold space, but I am involved in all of it, and that is what I would recommend.

However, people can make their own risk assessments. The risk in the gold equities is that they are leveraged to the gold price at least 2:1, if not 3:1. If gold goes up 10%, the equities go up 30%, and vice versa. Gold is a riskier bet, but if you believe in the thesis of gold going higher, it is a bet that has to win given the passage of time.

Precious metals investors are not going to win the game in the paper market. We have to win it in the physical market. More and more people are taking delivery of their physical gold.

TGR: This was supposed to be silver's decade. Why is it still below $30/oz?

ES: Silver has had a good run. I think it started the decade at $20/oz, reached $50/oz and is now at $29/oz. A lot of money can and will be printed in the next seven years. There is lots of time for physical silver to prove that it was the investment of the decade.

TGR: Why is it so important where physical bullion is stored?

ES: There are examples of people thinking they owned gold when they did not. For example, when MF Global went down, people could not get possession of their gold. In the case of the SPDR Gold Trust (GLD:NYSE) and the iShares Silver Trust (SLV:NYSE), we know they are short sellers. Therefore, there is no silver there for the person who bought it from the short sale.

If a fund's physical assets are being stored with a financial counterparty that goes broke, the gold and silver will not be available. People should reduce their risk by buying it from a bullion dealer and either taking physical delivery or knowing where it is on deposit.

You want to own and store physical metal assets yourself or know that you have access to them. Our trusts, for example, are all redeemable in gold, silver, platinum and palladium. That requires investing in larger amounts. I think you have to buy a 400-oz gold bar, which puts it out of most people's reach. But you can rest assured the gold is there.

TGR: What final piece of advice would you leave our readers with today?

ES: Be very wary of what we are being told about a recovery. We were told there would be a big recovery in 2012; there was none. Now we are being told about a nice second half recovery, because there has been no recovery in the first half. There probably will not be a recovery in the second half either.

On Jan. 17 the Treasury Department reported its Generally Accepted Accounting Principles (GAAP)-based budget deficit for 2013. It reported a $1.2 trillion ($1.2T) cash deficit, which is a measure of the change in the present value of future liabilities, such as Social Security, Medicare and Medicaid payments, and civil service pension plans, that the government must pay. In 2011, the total deficit was $5T. In 2012, it was $6.9T. Yet, Congress is haggling over how to save $100B. This is a $16T economy.

You cannot like bonds. It is difficult to like stocks in this environment. Instead, stick with the precious metals; sooner or later, we will win the physical war, and the prices will react accordingly.

TGR: Thank you for taking the time to share your time and insights, Eric.

Click here to read The Gold Report's transcript of the Sprott Precious Metals Round Table webcast with Eric Sprott, John Embry and Rick Rule.

Learn more about Sprott Money's storage service here.

Eric Sprott has over 40 years of experience in the investment industry. In 1981, he founded Sprott Securities (now called Cormark Securities Inc.), which today is one of Canada's largest independently owned securities firms. After establishing Sprott Asset Management Inc. in December 2001 as a separate entity, Sprott divested his entire ownership of Sprott Securities to its employees. Sprott's predictions on the state of the North American financial markets have been captured throughout the last several years in an investment strategy article that he authors titled "Markets At A Glance." Sprott has been widely recognized for his strategic insights and his accurate market predictions over the years.His newest ventures are Sprott Money Ltd., one of Canada's largest owners of gold and silver bullion, and the recently launched Sprott Physical Platinum and Palladium Trust.

Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE: 
1) JT Long conducted this interview for The Gold Report and provides services to The Gold Report as an employee or as an independent contractor. She or her family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: None. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Eric Sprott: I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent. 
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. 
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise - The Gold Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.

From time to time, Streetwise Reports LLC and its  directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8999
Fax: (707) 981-8998

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules