April 10, 2012

Eric Sprott is Super Bullish on Silver

As you know Eric Sprott has been known as strong advocate of precious metal investments. In fact, he has not always been bullish on precious metals so it is not correct to call him perm-bull. During the 1980s, Eric was very optimistic about the stock market. Since 2000, Mr Sprott is known for his rather more pessimistic views and the only things he is bullish on are precious metals and precious metal stocks.

He is very worried about Europe. He shared recently that only the LTRO is keeping the banking system in Europe alive. Banks are now addicted to the 1% credits but even with them things are not rosy. On China, Sprott believes that we might see hard-landing there.
He pointed out to a recent report that predicts a U.S. recession by mid-year, so this might be his view also.

As for the stock market, he points out it went up in the first quarter on decreasing volume. "It's a BS rally," he tells the audience, who would like to believe it's anything but.
"We have a system that is breaking down," he concludes.
Still the protection and best investment is not gold. The answer to all investors’ needs is another.

 The answer is silver.

Buy Gold

Why? Let us count the reasons.

1. Demand exceeds supply. Annual production is about 900 million ounces per year, including recycling. Industrial usage alone will rise to 660 million ounces by 2015. That leaves only 240 million ounces for coinage, central bank purchases, and investment. The latter category is huge; as of 2010 holdings of physical silver to back up exchange-traded funds was 577 million ounces.

2. Silver is undervalued compared to gold. The historic silver to gold ratio is 16 to one. The geological silver-gold in situ reserve ratio is 17.5 to one. The current silver-gold ratio is 51 to one. The implied price if silver reverts to its historic ratio with gold at US$1,600 an ounce is US$100 an ounce. The actual closing price on Thursday was US$31.73.

3. The silver price is artificially low. There has been speculation for some time that the price of silver has been kept deliberately low by market manipulation. A further unwinding of short positions is needed to free the metal to rise in value.

We agree with Eric Sprott, silver price will be up multiple times by the end of this decade.

Eric Sprott is a Canadian hedge fund manager and founder of Sprott Asset Management. He became a billionaire on paper with the initial public offering of Sprott Inc., the parent of his Sprott Asset Management firm.