Eric Sprott: Is the West Dishoarding Its Sovereign Treasure?
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.
So expresses Eric Sprott, CEO and founder of Sprott Asset Management, and one of the most experienced and vocal advocates for owning precious metals.
The past decade has validated Eric's thesis, as gold has risen considerably against all world fiat currencies. But what vexes him is that in recent years, when currency debasement has accelerated to extreme levels, precious metals prices have been clearly suppressed, particularly versus the U.S. dollar.
As the topic of price manipulation is nothing new, Eric finds his focus increasingly drawn to where the precious metals are going at these bargain prices - who is accumulating and who is dishoarding:
I’ve done a lot of work on the flow of metals. I come up with a net change of 2,300 tons a year in new buying in gold when the supply of gold hasn’t even gone up in the last twelve years. And you keep wondering: Well, where’s all this gold coming from?
His 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.
There are several key questions to ask here (not that the data publicly exists to answer them):
- How much of our sovereign monetary bullion reserves have been sold to date?
- How much will be sold in the future? (Are we willing to sell all of it? or is there a limit we refuse to let go of?)
- What will happen to the price of gold & silver when central banks stop selling to another? (Answer: shoot the moon)
- What will be the fate of those economies that dishorded their treasure? (Answer: lamentable)
When I see China buying 95 tons of gold in December and I read that India bought 100 tons in the month of January, when we all collectively know there’s only about 200 tons a month available – you have to conclude that G6 Central Banks continue to sell their gold in a very non-transparent fashion.
One of the things we saw in December was that the U.S. Department of Commerce reported that U.S. exports of gold were $4 billion. We exported 2.5 million ounces of gold. And where it comes from, [only] God knows; the country only produces 8.8 million a nd most of that’s used internally. So I don’t know how you just come up with 2.5 million ounces that you’re able to export. So I believe that even though it’s described as non-monetary gold, my guess is that it is monetary gold.
There’s lots afoot here in central banking to try to keep it organized. And I think one of those things is to keep the price suppressed.
But the non-G6 nations have been huge buyers of gold, and I think the more anybody looks at the system from outside looking in, they realize they have to have gold and silver, notwithstanding the nonsense that goes on in COMEX and the LBMA (London Bullion Market Association).
When I got involved in the gold market, it was assumed that the central banks had something like 36,000 tons of gold. And there was a great study done by Frank Veneroso where he suggests 18,000 those tons didn’t even exist anymore.
The [global] central banks are sellers of 400 tons in an overt fashion. Now we see buying of over 500 tons. That, just in itself, is a 900-ton change in a 4000-ton market, if I’m including recyclables here. And yet there’s been no increase in supply.
So I have to assume that these central banks are running low, and the question in my mind is, do they just go down to zero and then give up?
Or do they look in the cupboards one day and say look, this is just not going to work because the intensity of buying by people, like China in particular, has just gone absolutely bonkers. And it looks like India, notwithstanding putting a surtax or excise tax on gold, the demand seems to be very firm. And as you mentioned, mint sales have been amazingly strong here.
So I think there’s enough element of the world who get it that the pressure’s going to continue to be on the price of gold going higher. And yes, there’s nothing we can do in terms of what’s going on in the COMEX and the LBMA, but we keep seeing more and more people asking for delivery, even in the COMEX. So I think that the day can’t be far off. We can’t predict when it’s going to be, but the natural stage should be that the price of gold is going up, and we’re in such a tremendous financial crisis that it hasn’t been allowed to manifest itself because they’re putting out fires all the time.
For precious metals holders licking their wounds from the carnage of the past several months, this podcast offers both new insights and sound reminders of the long-term reasons for owning gold and silver. Those on the sidellines considering entering into the precious metals, perhaps for the first time, should consider reading our guide to Buying Gold & Silver after listening to this podcast.
[Update: interested readers may also want to view this infographic visualizing the world's silver supply. Compared to the US debt, it really hits home how the precious metals are a much more confidence-inspiring store of value than fiat currency.]
Click the play button below to listen to Chris' interview with Eric Sprott (34m:40s):
Chris Martenson: Welcome to another Peak Prosperity podcast. I am your host, of course – Chris Martenson, and today we welcome back Eric Sprott to the program.
Eric is chief executive officer and founder of Sprott Asset Management, where he also serves as chief investment officer and senior portfolio manager. Eric is one of the best-known experts on precious metals and has not been shy in his encouragement that the average investor should have a healthy amount of their portfolio allocated to gold, silver, and other hard assets.
Given the gut-wrenching recent turbulence in the precious metals, he is a very timely guest to have today. We’re going to talk about gold, silver, and what’s likely in store for stock and bond markets. Eric, hey, it’s a real pleasure to be talking with you again. I’ve really been looking forward to this.
Eric Sprott: Chris, I’m happy to be here, and I’m sure the views will be interesting. It’s been a very tough time, but most of the things that we tend to talk about have tended to play out here. And the market – both the precious metal market and the stock market – generally don’t seem to be conforming with what we see happening on the ground.
Chris Martenson: Indeed not. So let’s start here with some of those things on the ground. I see $85 billion a month in U.S. thin-air money printing. I see that Japan is promising to do whatever it takes to debase the yen. And G7 officials saying they’re okay with that. Francoise Hollande of France openly talking about the need to bring the euro down. Southern European banks in big trouble needing more in the way of bailouts, seemingly every day. U.S. Mint sales of silver breaking records, and open stories of industrial shortages of silver in China and maybe some hoarding in Germany by a car manufacturer.
And yet, gold and silver took a beating throughout all of this, and continue to take a beating even as we’re speaking right now – especially, I might note, during off-hour moments where quite obvious contract dumping is being used to push the price down. That’s how I interpret it. CFTC, of course – nowhere to be found. Eric, help us make sense of all this. What is going on here?
Eric Sprott: Sure. I think what’s going on is, we are so well into the financial crisis, there’s not a week that goes by that’s there’s not some event that comes up, whether it was three weeks ago, Banco de Monte Paschi [Belgio], and two weeks ago the third largest bank in the Netherlands gets taken over, over the weekend. And last week the ECB lending money to Peugeot, which seemed totally ridiculous. And I think everyone’s trying to keep it together, even though it would appear from the reading of the economy that 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 would be the debasing of the currencies, is the fact that real things will go up in value. Do you know it would start with the price of gold and silver? As you know, Chris, I’ve done a lot of work on the flow of metals. I come up with a net change of 2300 tons a year in new buying in gold when the supply of gold hasn’t even gone up in the last twelve years. And you keep wondering, where’s all this gold coming from?
And when I see China buying 95 tons of gold in December and I read that India bought 100 tons in the month of January, when we all collectively know there’s only about 200 tons a month available – one of the things we saw in December was that the U.S. Department of Commerce reported that U.S. exports of gold were $4 billion dollars. We exported 2.5 million ounces of gold. And where it comes from, [only] God knows. The country only produces 8.8 million. And most of that’s used internally. So I don’t know how you just come up with 2.5 million ounces that you’re able to export.
So I believe that even though it’s described as non-monetary gold, my guess is that it is monetary gold. So there’s lots of foot here in central banking to try to keep it organized. And I think one of those things is to keep the price suppressed. But the non-G6 nations have been huge buyers of gold, and I think the more anybody looks at the system from outside looking in, they realize they have to have gold and silver, notwithstanding the nonsense that goes on in COMEX and the LBMA (London Bullion Market Association).
Chris Martenson: There has to be certainly some tension building in the system. I understand that the desire by the central banks that are under the Fed’s aegis that everybody is controlled or influenced by the U.S. position in this. I understand their desire to keep the barometers of monetary recklessness tuned down. But the more they do that – if you treat any commodity this way, price and demand are functions of each other. Demand has just skyrocketed in the East, collectively China, India, but also other places.
So shouldn’t there be some tension building here where gold is now flowing pretty strongly? You’re mentioning a couple hundred tons a month is huge flowing from West to East. There has to be a breaking point for that. There has to be a moment when price has to be allowed to prevent, maybe even reverse, that flow.
Eric Sprott: Right. You know, usually when I got involved in the gold market, it was assumed that the central banks had something like 36,000 tons of gold. And there was a great study done by Frank Veneroso where he suggests 18,000 those tons didn’t even exist anymore. And as I said, Chris, I look at what’s going on in the last year, and we didn’t even have ETF (exchange-traded funds) ten years ago. The central banks are sellers of 400 tons in an overt fashion. Now we see buying of over 500 tons. That, just in itself, is a 900-ton change in a 4000-ton market, if I’m including recyclables here. And yet there’s been no increase in supply.
So I have to assume that these central banks are running low, and the question in my mind is, do they just go down to zero and then give up? Or, do they look in the cupboards one day and say look, this is just not going to work because the intensity of buying by people, like China in particular, has just gone absolutely bonkers. And it looks like India, notwithstanding putting a surtax or excise tax on gold, the demand seems to be very firm. And as you mentioned, mint sales have been amazingly strong here. So I think there’s enough element of the world who get it that the pressure’s going to continue to be on the price of gold going higher.
And yes, there’s nothing we can do in terms of what’s going on in the COMEX and the LBMA, but we keep seeing more and more people asking for delivery, even in the COMEX. So I think that the day can’t be far off. We can’t predict when it’s going to be, but the natural stage should be that the price of gold is going up, and we’re in such a tremendous financial crisis that it hasn’t been allowed to manifest itself because they’re putting out fires all the time.
Chris Martenson: It was interesting; I think it was just the day before yesterday, I read, the report where they had audited the United States’ gold was the headline, but, of course, what they did was they audited some of the Treasury’s gold that was found in the Federal Reserve’s vault, New York Fed in particular. They were glad to announce that it was all there. The article was very misleadingly written. It implied that that 99.8% of the gold was audited and accounted for. But in fact, it represents less than 5% of the United States’ official supported gold holdings.
What do you make of audits like that? Do they really prove anything? Here’s my frustration: I’ve been reading for years, trying to get a handle on where’s gold, who’s got it, which of it is encumbered, which it’s been leased out, how much of it has been hypothecated. And it’s proven to be some of the most difficult information to get access to at this point. How do you read it?
Eric Sprott: Obviously the situation is totally ridiculous that the Central Bank could put on one line of their balance sheet “gold and gold receivables,” because receivables are gold that you don’t have. In fact, it’s been used to suppress the price of gold by selling it in the physical market. And even the Austrian –I think it was – finance minister said, well, we only have thirteen percent of our gold, but we’ve earned considerable interest over the last ten years, which of course assumes it’s been leased. As anybody who’s a student of the gold market knows, when it’s been leased, it’s been purchased by someone, and it’s not going to return.
So the central banks can go to their counterparty and say we’d like our gold back [but] they know full well they’re not going to get it back, just as we see the problem manifesting in Germany where – I forget what the number is, but they get 700 tons over eight years, which is totally ridiculous. When you think of 100 tons went into India in the last month and 95 tons went into China the previous month, and yet it takes them ten years to get 700 tons back in Germany, and it’s just because the central banks know what their situation is. They know they can’t get the gold back, so they have to come up with some lame statement that they’re going to get it back over seven years, which they won’t be able to do.
Chris Martenson: That did catch my eye as well, the idea that it would take seven years and they mentioned how tricky it was. I think that with a few trucks and a few airplanes, you could do it by next Tuesday if you were serious about it. So there’s something going on there.
Now gold is an interesting story. Obviously it’s a monetary metal. But silver’s really caught my attention lately. It is a non-substitutable industrial metal. I believe there’s 0.1 grams in every watt of solar power being produced – in the panels. And we’re looking at industrial demand being quite strong. And the silver story is really an interesting one to me.
And yet when I see what’s going on in the paper markets, its clear that something is going on here, where it looks like manipulation to me. I see thousands of contracts dumped in odd moments, which is clearly a price-suppressive behavior. And the thing that’s been surprising to me in the past few weeks, I was expecting open interest to be falling. That’s something we would expect if we were seeing somebody dumping and then covering an attempt to clear out a position. But open interest has been climbing.
What are you seeing in the silver market? How do we make sense of that?
Eric Sprott: I wrote an article about three months ago asking the question why are people buying fifty times more silver than gold physically? And of course, the data points are quite visible, and the data points they use are at the U.S. Mint, where we sold something like 7.5 million ounces of silver in the month of January and we sold something like a 150,000 ounces of gold. So people bought fifty times more in silver than gold.
And the other proxy I use – I have two other proxies. One is, when we’ve done the tranches of our silver trust and our gold trust, we basically raise the same amount of money, which means we buy fifty times more silver than gold. And of course, these are people making their own independent decisions to buy these things. But silver on a gross basis is only available in a ratio with the gold of 11:1 in physical terms.
And as you pointed out, Chris, a lot of the silver is used for industrial purposes, which gold isn’t. By my calculations, only about three ounces of silver are available for investment versus every ounce of gold. So how long could people keep buying them at 50:1?
And the third proxy I use is when I talk to bullion dealers and I always ask them, what percent of your business is in silver and dollars, and what percent of your business is gold? And pretty well to a man they always say its 50:50, which again means people are buying fifty times more silver than gold.
So one thing I know is, that trend cannot persist before there will be a problem. We already saw a problem in essence manifest itself in the middle of January. The U.S. Mint suspended sales. We probably only even had two weeks of sales in January. So I think that the interest in silver is building. You can feel it in India; you can feel it in China; you can certainly see it here in North America. And some day there will be a failure to deliver.
I’m always happy to see now that there’s a lot more COMEX deliveries being forced on silver every day. Quite often we get additions to the current month, which means in the media delivery in silver, which we never saw before. So I suspect that much, as we’re all hearing anecdotally that there might be some shortages. I think we’ll see it manifested in people buying silver contracts, for example, in the February contract just to nominate for delivery.
So it’s only a question of when? None of us know that answer, but I think the day is getting a lot closer at hand.
Chris Martenson: This is something that has me concerned as well, because I’ve seen recently how in this crisis, all the rules have been chucked out the window. It’s proven to be useful for the Federal Reserve or Washington D.C. that a lot of very serious rules have been bent and bent hard. We just found out on Sunday that the Federal Reserve intervened in a suit between AIG and Bank of America over fraudulent loans that Bank of America had bundled and sold. And the Fed stepped in and said AIG? No, you can’t sue them. They’ve protected Bank of America to the tune of ten billion for reasons that make absolutely no sense beyond their protecting the bank.
Flip it over to a “failure to deliver” that might happen in COMEX, and what’s your sense of how that might play out? And my real question is, is there any concern on your behalf that the CFTC or an associated body will just simply step in, break all the rules, and protect the people who got caught on the wrong side of that?
Eric Sprott: History’s proven, particularly in the silver market, that you step in and protect the dealers before you protect the public. And I would imagine that’s what’s going to happen. They’ll say you can settle these things for cash and it’ll just go away in that sense. But when that day comes, those people might not incur the losses that they should rightfully incur.
When that happens, it’ll be the firing shot for people to own gold and silver. And I think we’d be off to the races. But those people who think they’re going to own gold and silver by owning a paper contract from COMEX, I think they’re totally misguided here.
Chris Martenson: Oh, absolutely! I would agree with that. So you’ve railed against the leverage in the global banking system, claiming it’s resulted in artificial liquidity and it’s powered asset prices higher. If this is unsustainable, which it seems both you and I would believe it is, Eric, what’s going to be the trigger that pops this most recent asset bubble?
Eric Sprott: There’s so many things wrong with the world. I just – I’m almost in shock when I read some of the data points. And to me, the biggest data point, and the elephant in the room these days, is when the U.S. Treasury Department reported a gap, the budget deficit for 2012 here on September 30th, the number was $6.9 trillion in an economy that is a $16 trillion dollar economy. And that was up from something in the $5 trillions last year, and it’ll go higher again this year.
And we’re all pretending that we don’t have a problem, but we have all these unfunded obligations. To me that’s by far the biggest problem out there, that we’re going to have to face a time when Social Security payments aren’t getting made, Medicare payments aren’t going to be made, perhaps we’ll have civil servants who think they have these life pension plans but will find out that the funds aren’t there for paying out. And we just dig ourselves in a deeper and deeper hole, and we sit here and fight a sequester thing of, like, a hundred billion dollars or something. And meanwhile we’re racking up deficits of $6.9 trillion a year. It’s almost insane that we focus on the small items which can’t even be resolved, by the way and we forget the big items.
I wrote an article probably two and a half years now ago and I said in it you know, dead government’s walking, and these governments are not going to be able to honor their commitments. And that leads you right back to gold and silver. Some day when we all find out the truth, and the truth is there to be seen, everyone will realize that gold and silver were the investments. Even though it doesn’t work out in the short term, you know it has to work out in the long term. So the problems are enormous.
The economic statistics don’t support a recovery. To think that we started 2012 saying, oh, it’s going to be a great year! We’re going to have 39% GDP. And here we end the year with a negative GDP printed. As I look at some of the data coming out here in January, it’s just atrocious, including the comment from the Wal-Mart emails that it’s the worst start to February ever. Where are the customers, where is their money? We’re not in an economic recovery. That I have no doubt in saying.
We’re all going to pay the price for this sooner or later. If GDP doesn’t grow, how do you grow earnings? Unless it’s just in the banking system because the Fed keeps printing money. But it’s going to be very difficult for companies serving the public to have their profits go up this year. In fact, the expectation on my part would be that they have to go down, because people don’t have any money to spend. They just got a 2% tax increase. Gasoline prices are the highest ever. We have all kinds of issues that this stock market hasn’t even done, to think about.
Chris Martenson: It seems to me that the Fed is all in on this move. So there were some moments in history, but we’d have to probably go back ten years or more to where I think we could have popped the larger credit bubble in a gentle way. And we got addicted to this idea – and particularly our financial system, bloated as it is, got addicted to this idea – that what we have to do is grow nominal credit at roughly two, sometimes as high as three times, as fast as nominal GDP. And that’s what we got used to. Budgets and expectations were all set around that.
That clearly burst in 2007 and 2008 very hard. And instead of recognizing that the Fed – and its associated member banks, which would be the Bank of England, Japan, and also the ECB – they’re all going all in on this. And help me, help us, understand. What are the outcomes?
I’m having what I would call an “imagination failure,” because I can’t understand how you can continually just push more and more credit and money into a system that is fundamentally unable to grow, for whatever sets of reasons. Debt is one of those reasons for me, but high-energy cost is another reason. There are a variety of factors impinging on growth, and yet you have “pedal to the metal” behavior. How does that not end with some kind of a currency accident?
Eric Sprott: Well Chris, there’s no question about that. It will go on until it can’t go on. And we are in an age where we’re using the most extreme measures to try to hold things together. You know the gold bowl going back to 2000, I probably never could have dreamed that we would have money printing. I never could have dreamed that we have bank loans that we experienced over the last two years. All these things say you should own gold. I never would have imagined we would get the currency debasement that we have.
I think it’s instructive to think of just what happened in Venezuela, where they had a 46% devaluation. And everyone who would have had their money in gold and silver would not have lost any purchasing power. And the Japanese, had they owned gold, would not have lost purchasing power. I just don’t understand how people don’t get this, that it’s the most incredibly safe asset you can have. It’s appreciating against every currency for the last twelve years. I grant you that it hasn’t done much in twenty-two months, but as you pointed out, we see these strange goings-on in the paper market, and I think it’s because of the desperation of Central Banks. It’s the “all in” that you mentioned.
And speaking of “all in,” I would imagine if I were those guys trying to keep it together and I was printing $4 trillion I’d make sure the stock market went up even if the fundamentals don’t suggest that it should. And sooner or later, the fundamentals are going to win out here; we’re going to find that this promised recovery is not a recovery.
I’m a great believer in weakness begets weakness. If somebody announces a layoff, somebody else loses their job, and only two things can stop it: Fiscal policy; which we have no room. The fact that we have to sequester it gets worse here in the U.S. And monetary policy; how much more monetary policy can you have other than zero interest rates? Or are we going to print as much money as it takes? There’s nothing else to help us once the weakness just creates more weakness.
So I think the key thing for investors who are particularly long stocks just watch this data come out here. And you better be wary about believing that we’re in any kind of recovery, because I don’t think for one second that we are.
Chris Martenson: And the primary reason for not being in a recovery is that from the way I look at it, you mentioned the Wal-Mart information; it’s clear that also from food stamp participation, from falling real incomes at a median level, that all of the benefits of this money printing very predictably don’t tend to flow to the masses. Which of course whereas you’re going to get an organic self-sustaining recovery, they tend to flow very preferentially to very narrow channels, that they’ve great skimming operations at these big banks, the hedge funds, and other private equity places. They’re very, very good at taking advantage of that liquidity. And at the same time, my main critique is that that’s hoping the tail is going to wag the dog. If we can just get the stock market to go up, that’ll create the right appearance and then people will spend. But that’s not what we’re seeing, is it?
Eric Sprott: No. I think most people look at the stock market as some forecaster of the future. And Walmart stocks are up; therefore things must be good. So you think things are well. But you know in reality that the average person has to know it’s not well. We just took tax increase; jobs are tough to find, and well-paying jobs are tougher to find. So the broad majority of workers are not having an easy time with it.
And it’s going to be reflected in Wal-Mart sales, in J.C. Penney sales, and you know anybody appealing to the consumer is going to have a tough time. Maybe by repackaging everything and making things smaller at the same price, maybe the companies can survive for a while. But you know what the impact on the consumer is. He’s the guy paying the same price for the box of cereal that has 20% less than it used to have. And that’s inflation; it’s not defined in inflation under the CPI (Consumer Price Index) calculations, but that’s what it is.
And I think the inflation’s way beyond what people think it is. People are falling more and more behind. The savers are getting sacrificed here. I just can’t be optimistic for one second about one resolution to this problem.
Chris Martenson: You’re on record as saying that we’ve just entered the decade of silver. Is there anything to the silver story that we haven’t covered here? Because a lot of my expectation around silver is that we are going to enter a recovery at some point; the demand for silver industrially is going to be maintained. And that silver provides some hedging against currency madness and other things like that. But really, my main rationale for silver and my passion for it is just what a wonderful substance it is, and that it gets consumed pretty regularly and lost, if you will, through industrial processes.
What are you looking at when you say this is the decade of silver?
Eric Sprott: I look at it as, where’s the big marginal change. And yes, industrial consumption can go up 5% a year. I think where the big change happens is when you see people buying silver as an investment. I don’t have the data in front of me, but I’d be willing to bet that the amount of silver coins sold by the U.S. Mint in 2000 versus today has probably gone up by a thousand percent.
Why has it gone up by a thousand percent? It’s the same coin it was twelve years ago. Because people see what’s going on in the economy. And they realize they have to have some means of protecting themselves. And I think it’s that the savings get directed to silver and gold. And the margin, of course – there’s not much silver. It’s hard to put a lot of money into silver.
And we’ve seen lots of experts say you should have ten percent of your money in precious metals. That’s the biggest joke of all time. It’s impossible for people to have ten percent of their money in precious metals, because precious metals only represent one percent of all the paper ever issued. And you can’t just have everyone buy ten percent, because the physical supply of gold, as an example, only goes up by one and half percent a year. So we’re all at one percent, at the end of this year it will be 101.5 and then end of next 103; there’s no way can people eat it, the ten percent.
And yet, there seems to be that groundswell of interest in precious metals even more so today than ever. I just find it stunning, the numbers of tons that people are buying of these metals. So it has to work out in due course, notwithstanding the fight that we have against the powers that want us all to think that everything’s perfectly fine when most of them say we look at it and it’s not fine at all.
Chris Martenson: All right, let’s play the price prediction game, if you will. Here we are in 2013. I was certainly expecting this monetary madness to have reflected itself through a lot of commodity prices. QE (quantitative easing) has always been very strong for commodities across the board. I’ll grudgingly lump gold into the commodity thing, but I treat it as money. Silver’s still a commodity for me. So as we look into the commodity complex entirely, but also for precious metals, do you think this QE is going to bleed into commodity prices this year?
Eric Sprott: I would think so, and I look at it more as an alternate investment. That’s what I think people will do, that they’re looking for an alternate investment and the alternate investment is gold and silver. And of course, that marginal buying will make a substantive difference.
And I’ve always thought that the price of silver, for example, would hit a new high this year. I still believe that, based on the physicalness of what’s going on. It can be delayed temporarily by some guy who’s adding on short positions and keeping the price a surprise. But sooner or later, the physical is going to win the day here.
And the more they keep printing, the more there’s abuse of the financial system. So for example, it was pointed out that the Fed in January increased the loans to European banks by $237 billion. Where does that come from? Obviously it was a huge banking problem in Europe. And these guys work together to keep it under the radar screen; as long as enough people know it, enough people will react, and we’ll see the performance in the physical markets.
Chris Martenson: All right, without holding ourselves to a sense of timing, I’m interested in fair value then. So silver is – wow, it’s at $29.40 right now, but where do you think a normal market clearing price would be once we got rid of the shenanigans that are at play here?
Eric Sprott: Well, Chris, I’ve always believed that the silver should trade at a 16:1 ratio to gold, which is where it’s always been historically. That seems totally logical to me. I still expect the gold price to move up sharply here. You start trading at 16:1, that would imply a price today of silver at $100. If you have gold moving up here, you could get a substantial increase in the gold price, and therefore even that expectation would go higher.
I think we’ll go there someday. You can’t keep these things suppressed forever. It’s only available 11:1. Even saying 16:1is hardly pushing it, and in terms of the gold – many people have done this work; I’m not one of them. But with all the money that’s outstanding, getting to $10,000 prices is not a very difficult thing to do. So it’s a lot higher here. I think that’s probably the best way of putting it.
Chris Martenson: I know you’ve got a very interesting conference coming up, and there’ll be an opportunity there for people to learn more about gold, silver, and other resources. Do you have any interest in telling us something about that conference?
Eric Sprott: We have the Prospectors’ convention coming up in Toranto. It’s held every year. It’s quite largely attended, there’s a huge interest in it, and I will be speaking there. I think one of my other partners, Rick Rule, is speaking there. What I find is that most of the people who are involved in precious metals and have been involved in precious metals for a long time are all of the people who’ve seen all these problems coming well ahead of time. The housing bubble was no surprise to us. The whole printing of money was no surprise to us. The whole market decline in 2000 wasn’t even a surprise to us. The decline in 2008 wasn’t, and the banking thing was no surprise. It’s so obvious that we just keep connecting the dots. So for the most part, those speakers tend to be the few that really can assess the reality of the situation correctly. And that’s why it makes for a very interesting and a good learning session for people who are there.
Chris Martenson: Fantastic! When’s that one going to be?
Eric Sprott: That’s in early March. I know I got to go to Mines and Metals conference in Hong Kong in, I think, the third week of March. So the same thing; I’m going to be interested in going over to China and just try to get some sense of it, because obviously they’re the dominant buyer by far of metal. And it makes all the sense in the world that they should be. If I was in the treasury department in China, I’d be moving out the T-bills and moving in the gold as fast as I can. And it looks, quite frankly, like they’re doing it, if you look at the data points, because their [gold] imports have probably gone up 1000% from two years ago.
Chris Martenson: Yeah, and those are just the published numbers. I’m wondering if there might not be also some unpublished numbers, because I know China values secrecy in these matters as well. I’d be really fascinated to hear.
Eric Sprott: The thing I find interesting, the only reason we get a data point, is it comes from Hong Kong. They’re used to providing this data. We have no idea how much gold and silver’s going from Geneva to Beijing or London to Beijing. This is only what goes from Hong Kong into the mainland. So I suspect it’s way higher than that one number that we get to use.
Chris Martenson: Oh, absolutely! It has to be. And certainly China’s a large gold producer, and I’m not aware of any exports of gold that come out of the country. So I’m pretty sure that we can be certain that they’re building up from internal stores. But then is there a chance that there’s gold flowing in from other channels? Of course, there is. Absolutely!
Eric Sprott: Chris, we know there is. We’ve talked to people who have shipped into China, and it doesn’t all go through Hong Kong. But we won’t see those numbers until the Chinese are ready to tell us about them.
Chris Martenson: Absolutely! That’s the big picture then. So nothing’s really been fixed. I trust what people do more than what they say. So I’m trusting that the Fed’s dumping $85 billion a month into the markets for some reason. I trust that they’re shielding Bank of America from the repercussions of their actions for some reason. I trust they’re sending $230 billion to foreign banks in Europe for some reason. And I trust that the price of gold and silver are being held in check for some reason. And all these reasons really make sense.
Seriously, isn’t this exactly what you would be doing, potentially, if you were in there position and you were attempting to preserve the status quo? All of this makes sense to me, anyway, and secondarily, it also makes sense to me that it’s just foolish beyond belief to think that the Federal Reserve – and any other planning agency – can possibly control and plan all of this forever.
Eric Sprott: As Paul Volker said, the mistake we made in 1980 was not getting control of the gold price. And as you know, from 1971 to 1980, the price of gold went from $35 to $850. And we ended up with high double-digits of inflation. And I think they realized that if the price of gold gets away this time, people realize what their reaction should be. And it would cause inflation because real things would go up in value. So I’m actually convinced that’s why these shenanigans go on in the market. But sooner or later the people who own physical, they have to win today.
Chris Martenson: With that I absolutely agree. And I want to thank you so much for your time here today. I will note that we will provide a link to your upcoming conference. I think people should attend if they can. And also, where can people follow your work more closely if they’re interested?
Eric Sprott: If they go to www.sprott.com, pretty well everything we write and a lot of the interviews are there. And it’s easy to access. And if anybody wants to get in touch with us again, always send an email. And if they have an individual question we can try to answer it.
Chris Martenson: Fantastic! Eric, thanks so much for your time today. I appreciate it. I know you’re traveling, so taking time out of your schedule is very much appreciated by myself and everyone listening.
Eric Sprott: Good! And it was very much a pleasure, and again, thank you for being one of the realists who keeps people advised of what’s really happening in the world, Chris. All the best!
Chris Martenson: Just trying to connect a few dots, Eric, just like you, so thanks.
Eric Sprott: Thank you.