Transcript for Eric Sprott - Paper Markets Are a Joke: Prepare for Bullion Prices to Go Supernova

Below is the transcript for Eric Sprott – Paper Markets Are A Joke: Prepare for Bullion Prices to Go Supernova:

 

Chris Martenson:  Welcome, Eric; it's a real pleasure to have you today.

Eric Sprott:  Chris, good to be here, and thank you for all the work you are doing in apprising your investors of what's really going on in the world.

Chris Martenson:  Oh, thank you. We’ve been at it many years and unfortunately much of what I think both you and I saw coming – though unfortunately not enough others along the way – is really coming to pass. If I could, let’s start with your views. You have been advocating and creating investment vehicles for people to own gold and silver for a long time. How did you get to that position and what are your views on owning gold and silver at this point?

Eric Sprott:  Sure. Well it all started, Chris, with our studies back in 2001 where we were entering into a secular bear market and wondering how you deal with that. And a typical response would be to own gold and silver, which is what we decided to do. I think the one thing that really tipped us into it was an analysis of the physical supply and demand for gold and some work by Frank Veneroso that suggested things would have to change dramatically in the physical gold market because the central banks were selling four to five hundred tons a year. And as you know, here we are eleven years later and now they are buying four hundred tons a year on balance, and this is in a market where the mines supply only twenty-six hundred tons a year. So that is a huge change that had to take place that Frank identified back then. He also identified that the gold companies would stop hedging. We’ve had the ETF’s come along. So we have had a lot of dramatic changes in the physical balance between supply and demand in gold. And that is really what took us there in 2000; to get actively involved in that particular market.

Chris Martenson:  And looking at it today, has anything changed in that analysis? You mentioned a secular bear market, are we still in one and also has anything changed in the fundamental supply/demand equation that has actually tipped it one way or the other, further or less, since the initial analysis you looked at?

Eric Sprott:  Sure. Well, I do think we are still in the secular bear market and basically what people describe with the phrase “extend and pretend”. And we had the zero interest rate policy, the housing boom, the lending boom, TARP and TALF and all those things which try to delay what naturally should happen. When I look at the headwinds for gold and silver, I really believe that we have been aided and abetted by a lot of these policies, particularly QE1 and QE2 and the various printing mechanisms of the ECB and the Japanese government and almost all governments in the world. So as much as I would not have anticipated those types of developments happening, they have happened and they provide an even stronger headwind for people realizing that currencies are not going to survive and to maintain your purchasing power you have to own precious metals.

Chris Martenson:  You know, I too have been surprised by how long all of this has stretched out. If you had told me five years ago – Eric if you had said “Chris, the Federal Government in the U.S. is going to be running a $1.6 trillion dollar deficit and the Federal Reserve is going to monetizing 75% of that and the bond markets will be relatively tame and the dollar will still be roughly where it is at”; I would have said you’re nuts. But here we are. And my view on this is that what we are kicking the can down the road. We have bought some time, – which I am thankful for personally – however the risks are now increasing. And the risk that I have identified that concerns me a lot is that, sooner or later, much is happening in Greece right now where suddenly the world wakes up and says “Hey, wait a minute. They can’t possibly pay that back. And at 22% interest rates on 2-year paper, they really can’t pay that back.” So suddenly the illusion is lifted. We have collectively suddenly gone, “Greece is not solvent. Oh, that’s terrible.” And now we are grappling with that. But that same dynamic can be extended to, I think, any of the governments that you just mentioned. It varies across Europe somewhat, but in Japan and the U.S. there certainly are fundamental mismatches between current productive economic output and the levels of indebtedness. We are printing our way to that. Is there a way that you can see that this could actually be turned around where it all sort of pencils out? Is there a solution to this that does not have to pass through a fiscal crisis and possibly a currency crisis?

Eric Sprott:  Well Chris, it is very hard to imagine that happening. And then I look at really what has happened over the last eleven years since we hit the high in that, we basically created a problem in the world of banking business and I always think of banks as being levered 20 to 1. And when your paper assets start to decline, of course it does not take much of a decline to get rid of all the capital. And we have seen that in so many instances whether it is Iceland or Ireland or now the Greek banks. And all the moves that have happened so far really have been in response to the problems in the banking system. That is why you have TARP and TALF and all those things because the banks basically were losing deposits and somebody had to come in and support them. That is what happened in the UK, it happened in Iceland, it happened in Ireland, it’s happening in Greece as is transpiring right now. And I think the big fear is that you cannot let one banking system go down without an impact on all the other banking systems. So collectively everyone is trying to support the banking system and I think people see through the ruse. And the natural reaction is “Well, why have your money in a bank when you earn nothing, why not have it in something that might at least maintain its purchasing power?”

Chris Martenson:  Well absolutely. So all kinds of productive assets spring to mind as well as wealth preservation vehicles, gold and silver being obvious. But also we are seeing some of that dynamic in the commodity complex in land prices, particularly for farmland and timberland. There are, I think, many people who have come to the same conclusion which is, that there is something structurally flawed both internally to the whole economic and fiat money model, and also externally, which is my metaphor for bringing in Peak Oil and the idea that we are really going to be facing an enormous headwind of rising energy prices no matter how we slice it at this point, unless we discover something really magnificent. And so these are all upon us. And here we are, when you look forward into this, there is a big debate out there: does this end up in an inflationary crunch, or do we go down a deflationary crunch? In my mind, I hold gold under both circumstances. What are your views?

Eric Sprott:  Well, first of all, I can’t agree with you more. I think three of the safest areas to be involved in are the precious metals, agriculture, and energy. Energy, unfortunately, might, if there is some kind of economic crisis, go down in the short term. But I think if you would withdraw funding for the energy industry with the decline rates we have in oil and gas production, if people stop drilling, we would certainly see a very, very quick recovery. So I could not agree with you more. There is obviously does not seem to be any solution at hand of the problems and I think people should stay focused on those particular areas.

Chris Martenson:  And how would they do that in your mind? I know you have got a couple of funds that deal with these pieces. I know that I get questions all the time from people who are concerned about geopolitical risks, there are jurisdictional risks, taxes – it is a very complicated environment. And I think increasingly complicated as governments struggle to maintain revenues and receipts and all of that. How do you suggest people begin to approach getting into these areas, many of which like agricultural land are very, very difficult. Most people are stumped about how they would get into that particular area at all. What is your advice there?

Eric Sprott:  Well, agriculture is the toughest because there are not really that many public companies I know of. In Canada, there is not much. I mean, for example, we have potash companies which we have been active in, but there is not a lot of opportunity there in the public domain. I guess in the private domain, people could own farmland which you have already alluded to. But there are way more opportunities in precious metals and oil and gas. And I particularly emphasize precious metals because they are amongst the most liquid markets in the world. There are many, many vehicles available. Some have way better attributes than others, that is why we created funds where if you buy our gold or silver trust, you can actually receive the gold or silver. Of course, they could always buy coins, which they have been doing in great quantities here. So those would be my primary recommendations to people, buy something where you can get access to physical metal.

Chris Martenson:  Physical metal. And do you ever give out – I know this is a complicated topic, depends by age and economic bracket, other things – but do you have a range for a percent of somebody’s portfolio that should be allocated to precious metals?

Eric Sprott:  Chris, it’s a favorite question I am asked all the time. And I always respond with what I do. And I know in our equity funds, we are probably 75% involved in precious metals. And probably 30% of that is physical metals and the other 45% is in precious metals equities. In my own instance, I am seriously involved in owning physical gold and silver and I do always point out that I do not have any trouble going to sleep at night knowing that I own these metals because there is no way that they are not going to hold their value in whichever environment you have, whether it is deflation or inflation that you mentioned earlier. And I happen to be of a view that we will see deflation in paper assets, but we will see inflation in real assets. 

Chris Martenson:  Deflation in paper assets, inflation in real assets. One distinction, do you include real estate in your description of real assets?

Eric Sprott:  I do not include real estate. And the reason I do not include real estate is because it is basically a function of interest rates and the economy. You know most real estate is backed by loans and that creates a great problem. So I would certainly distinguish as you have, that owning farmland, which is something that produces something real, is more important than owning let’s say, a commercial building that really is not producing anything but is backed by some mortgage where ultimately the mortgage lender is going to have concern that his loan will not be repaid and the price of that property would go down.

Chris Martenson:  Yeah, I share that view. In this story, we get a lot a questions from people who are just sort of new to the game and they look at gold at $1,500+ dollars, they look at silver right around $36 now. They look at the historical chart and they gasp, and they say “I can’t buy now.” How do you talk to people; what is your advice around buying gold and silver now at these particular levels or at any point in time? How would you advise people to go about building a core position if they did not have one?

Eric Sprott:  Well, I think that the prices will continue higher. I mean the amount of money printing is unbelievable. I just think you have to take that initial stand in terms of buying it. I use the James Turk analogy: just keep dollar averaging. We have gone up eleven years in a row, this year it looks like it will be no exception; I would certainly think next year will be no exception. If we ever have QE3 announced, I think gold and silver will just go absolutely bonkers here. And so I just think you have got to step in there and own it; we’ve had these fears all the way along. You know, $400 and $500 and $700 and $800 dollar gold, everyone was afraid it was a one-time thing. I don’t think it is a one-time thing, I think it is a secular thing. It’s going to carry on for quite a while here until we find some resolution of these problems. And the resolution probably will be some form of default where people just have to expunge debts that cannot be repaid. So, you have got to be in some asset which will not be affected by that.

Chris Martenson:  I agree. You know I hear a lot where people will say “gold is in a bubble” and they use price as the indicator to prove that. Bubbles are not indicated by price to me. They are indicated by psychology. A bubble is a component of social psychology; finance is sort of an afterthought, we put prices on it. I still can go to parties and find almost nobody who actually owns any physical gold themselves or even anyone who own paper representations of gold. It is still a very tiny minority I think, in the overall investing public at this point. What I do see a lot of are ads to buy all of your ‘junk’ gold, as if there is such a thing you know. Yeah, I keep all my junk gold in a barrel out in the garage waiting to haul it off to the local motel where they are holding a gold buying spree. I do not feel we are in a bubble yet, because the psychology is not there. The housing bubble had that psychology; we had hairdressers in Las Vegas with 19 homes. I do not know anybody who is a gold trader, who has taken up gold trading at home or has become a broker or even owns any. What are your views here on gold being in a bubble?

Eric Sprott:  We’ve done some work on that and we looked at the amount of money that had been invested in gold from 2000 to 2010. And I think the waiting in gold went from 2% of people’s portfolio to 0.8% of people’s portfolio. But if you just look at the rise in the price of gold over that time period, it accounted for by far the majority of the increase in the total investment in gold and silver. Which really means very few people were making new investments in the area. And I think that is still the case. Yes, we have had some early movers in gold. You know we had some of the hedge funds in the States buy gold. We recently had that Texas pension fund buy physical gold. But these are a few outliers here and I do not think it has hit the mainstream to any extent whatsoever. And I might say in silver, I do not really see the institutional participation in silver. When we went out marketing our silver fund in October 2010, we had very, very weak response from the institutions, which sort of told me, you know, they have not really taken the time to study silver and the supply and demand situation there. And I think that is all yet to come in both gold and silver, that it will hit a tipping point where people do realize exactly what is going on and that these investments would have a lot of merit in all funds.

Chris Martenson:  Oh, I agree. And I think that particularly longer-term funds who have a bigger view – these are endowments, these are pension funds, these are people who are looking out across decades – I don’t know how you can look across decades at silver and its fundamental supply demand equation, its industrial utility, and its potential monetary utility – for all of its pieces, I see an enormous structural shortfall over time and that is, to me, a perfect investment opportunity and something that anybody with a longer view would get involved in. My silver, personally I have every intention of at least passing it to my children, but possibly my grandchildren, should I ever have any. It is my Rip Van Winkle portfolio. Because everything that I look at there, says there is really not very many places for that to go except to become far more valuable as we progress through time.

Eric Sprott:  When I look at the physical silver market, I mean, there are some stunning developments. The world supplies over 900 million ounces of silver a year. But if you simply go back to the Chinese, in ’05 they were an exporter of 100 million ounces; today they are an importer of 100 million ounces. That is a shift of 200 million ounces.

Chris Martenson:  Wow

Eric Sprott:  From one source, in a 900 million ounce market. Let’s go back to 2005, there were no ETF’s. Now we have ETF’s that have 500 million ounces. You had hedging which you do not have now, although there was some action put on late last year, particularly by Carlos Slim. But I think all of the physical data we see on silver is just screaming that there is a shortage. And in fact this morning, I just looked at the Silver Institute’s study of supply and demand for silver and I mean I find it almost ridiculous that they always show supply equals demand and they have a plugged in number for investment demand. Our own analysis suggests that demand for silver far outweighs supply and ultimately the price has to go higher. As you have mentioned, the industrial uses, I think last year were up something like 18% to 20%, the investment demand was skyrocketing. I do not know where all this silver is coming from, you have to ask yourself, well, who in ’05 was getting silver that today is not getting silver? The Chinese are buying so much and coin sales are so high. I mean it just boggles the mind that somebody has not come out and said they cannot access silver. And that is the day I am waiting for, when let us say Eastman Kodak says, they cannot buy enough silver or there is not silver available. That will really stun the silver market.

Chris Martenson:  Hmm, so I really want to wade into the CFTC and all of that in just a second but I remember reading that your silver fund had bought quite an amount of silver, I think it was several million ounces, I forget the number. And that it took a number of months to actually receive it. Is that true?

Eric Sprott:  Yes, when we started the fund, we had to go into the market and buy fifteen million ounces of silver, which is not a lot in the 900 million ounce market. The stunning thing is that took about two and a half months to receive that silver. And when we looked at the bars we see some of that silver we ultimately purchased, was manufactured after we purchased it. In other words, it was manufactured in November and we bought it in October. So it just told me there is no silver lying around to be delivered against contract. And when you look at the Comex inventory for length of dealer inventories they are something like 28 or 29 million ounces, I mean that is $1.2 billion. I mean that is nothing. Any one of 500 institutions could buy it and there would be no Comex silver. I mean the whole takedown of silver, the manipulation of silver that has been suggested in lawsuits, I think, stands a good chance of proving to be the case. The raid that took place on May 1st was a joke. We are just in the process of analyzing it now and there was no way that speculators and the long sides could maintain their position when you wake up on a Monday morning and you are already down $6.00 an ounce which would have basically would have gotten rid of all your margins already. And then they bang on four subsequent margin rate increases. It was a perfectly orchestrated raid by the people who were short, but I think it indicates that there was a real physical problem in the silver market. I expect that to manifest itself as we move into the latter part of this year.

Chris Martenson:  Yeah, I watched that one in real time. I was up late that night on Sunday and I saw that huge plunge and actually recovered a bit of that plunge. But the plunge started, I think the only markets open at that point were maybe Hong Kong or maybe Sydney. And they are tiny. So the raid started in the very thinly traded Globex Market and to me it is kind of like the analogy would be the price of beef plummets in Hawaii one night and the next morning, all of Oklahoma wakes up and finds out that their beef is worth 20% less. It just did not make any sense to me at all. Is that what you are seeing there?

Eric Sprott:  Well, just imagine the margin calls. You know you drop $5.00 or $6.00 bucks like that, I mean most people against a $48.00 contract probably only had up $5.00 or $6.00 bucks of collateral. So you have to double it overnight. And then they bang out the four margin rate increases. By the time it was all over you are down $15.00 off the high. Just imagine the flow of money needed to maintain your position. And of course, now we see the evidence of what happened. I think the SLV lost 50 million physical ounces. The specs were forced to liquidate and the commercials, who were short the whole time, were able to buy back a lot of paper silver in the process and book profits. But it is such a classic setup in the silver market, to force the speculators to cover. I mean yes, they won that little battle, but I certainly do not think they are going to win the war.

Chris Martenson:  And your view then is that somehow this is, we have got the commercials, we have got the big banks, I presume you mean the bullion banks in this case. The players, if you do not want to name names that is fine. But your view is that they have some outsized abilities to influence this market and let us call it what it is, they manipulate the market in order to extract economic advantage for themselves. Are they doing this simply because this is a bear raid strategy they know how to pull off and it has been successful and they make money at it? Or are they doing this to hold prices down, or is it both? What is your view on this then?

Eric Sprott:  Well, I think, Chris, when you realize how much money these shorts were losing. I mean, we had silver rally from $18.00 to $50.00 or $49.50. I mean the losses would have been monumental. They were being forced to deal with the short position. It was a perfect night for a raid because as you mentioned, China was closed that day, the UK was closed, nobody was really up when this decline took place and I gather it took place on very, very few contracts. So it is a typical tactic in the precious metals market. We have seen it all along in gold. I mean I cannot tell you how many raids we have seen from the gold price over the last eleven years but they occur with great regularity. But ultimately they fail and again I refer to James Turk and he describes the gold price as a measured retreat by the central banks and the bullion shorts. They just know that there is a shortage of physical gold and I would like to use analogy: imagine if in the world, everything was the same today save one thing. Let us say the silver price was still $5.00. Imagine the amount of money that is going into silver today and how much silver you would buy at $5.00. You would be buying ten times more than you would have imagined. But the supply was relatively the same so they have to let the price go up to decrease the physicalness of the market. That the money wanting to go in, can buy fewer and fewer ounces as the price goes up.

Chris Martenson:  Well, certainly, you mentioned increased Chinese demand. Also, India, an important source of demand. And this is just Economics 101: if you hold the price down, demand will go up. And I am sensitive to the idea that central banks have long been interested in the price of gold and politicians too. They like it to stay relatively tame. They like inflation to stay relatively tame because a hair-raising, spiking signal from gold says something. And it says something that I think casts dispersions on their policy decisions and other things. And we know this from the London Gold Pool in ’69 and Ruben’s strong dollar policy and all kinds of things that this has been a one of many things that the banks look at. So I know they look at it and I am sure they do not cry many tears when the price of gold is held in check but the flip side to that is, that then we have more demand than we would otherwise have. And part of that process then involves, I think, a hemorrhaging of the gold and silver away from those places of low prices and towards the people who want to buy it. Are you seeing it change patterns of flows in the overall global precious metals market? I mean grossly speaking, is it leaking from West to East?

Eric Sprott:  Well, I don’t think there is any doubt about it. As people assess the economic policies throughout the world, they realize that fiat currency is just paper. The demand for physical silver and gold is of course is strongest in India and China. I think as you noted the interest in gold and silver in the developed countries is not nearly the same as it is in the less developed countries. So I think those trends are going to continue when the developed countries catch on which might start happening pretty quickly here with the recent data we have seen which basically shows that we are falling off a cliff. And one of the things I challenge investors with these days is: If you do not know what is going to happen on July 1, when QE2 ends, are we all just like a herd of lemmings going over a cliff here? Because there better be a QE3, or you are going to have some economic crisis. And of course, economic crisis are not good for banks and my ultimate view of what happens to gold and silver is that people decide to take their money out of the banks and there is only one place to go. And we have seen this happen in various countries that run into trouble. We hear about money flowing out of Greek banks, and why wouldn’t it? And the next one was the money will be flowing out of Portuguese banks. And sooner or later, instead of just moving from bank A to bank B, people might start moving it from bank A, B and C to precious metals. Which I think is what ultimately will happen here and provide this huge supernova for gold and silver.

Chris Martenson:  I want to talk about what this endgame might look like. I have been expecting at some point there might be a day when I wake up and there are two prices for silver. One that is set at the COMEX, and the other one which is what I actually have to pay to get some. And the wider that spreads, the greater the pressure on the overall market. You have already hinted, you have said that you think that there is not that much in the COMEX, the CFTC has been complicit in some way in helping to preserve – the CFTC might actually be just trying to preserve the amount of silver in the warehouses by going through their margin hikes and all of that and supporting all of that. What is your view of how this actually comes into fruition if we suddenly see this shortfall? Eastman Kodak says “Hey, where is the silver? We want it, we have to stop our industrial processes until we get it.” Tell us about that moment and how that comes about.

Eric Sprott:  Well first of all I think COMEX is a joke, and I think all the paper markets are a joke. As you are probably aware, we trade a billion ounces of silver a day. A billion ounces. The world produces 900 million a year.

And you know, rather than us saying, well, the buyers are speculators, what are the sellers thinking? He is trading a billion ounces in the sell side, and there is all 28 million in the COMEX, there is obviously a shortage of silver. What is the guy selling it thinking? He is the guy with the unlimited losses. At least the guy long silver, he knows what his loss can be, but the guy shorting silver? We have already seen silver from a year ago go up by 150%, I mean, just think of the outside losses. So I do not really think that the COMEX and the LBMA are serving much purpose in terms of supposedly being involved in the physical market. They are not physical whatsoever. They are just paper markets. And on a daily basis, at most, we probably have got about a million ounces of silver everyday available for investment. Because most of it is used for industrial. So here we have a million ounces available, we trade a billion ounces a day. I mean it just, it is almost beyond belief. It is surreal in a way that it would be that much trading. It is all paper.

And I do not know how we resolve what is obviously a physical shortage here. I mean, there is not much primary silver production, it is not a big part of all silver production. And you see the kinds of moves we have, where coin sales are up 30% and the industrial demand is up 20% and demand for solar goes up 100%. I mean, the numbers are astounding in terms of growth of silver demand, but the supply goes up by 3% or 4% a year. So there is no way out of the physical imbalance in my mind. Maybe we end up with two markets, one physical, and one paper. I think the more likely thing is that COMEX probably defaults somewhere along the line. If somebody just stood up and said “Fine, I will take the 28 and 29 million ounces” – it would be all over. So that may happen some day.

Chris Martenson:  Well, you raise an interesting point for me, which is why I actually prefer to own physical gold and silver. I was a pretty active futures trader for a while, but that was just a game. I am convinced that when that event comes – and it will at some point – that what they will do, the CFTC in this case and other rule setters, is they will just change the rules. Like they did with the Hunt Brothers. Like they always do, right? When the going gets tough, what they do is they just change the rules and say “Oh were you long this contract? We are very sorry, we’re doing a cash settlement at some arbitrary level.”

I think the warning shot across everybody’s bow should have been the flash crash, May 10, 2009, what the NYSE did was arbitrarily write in and say “Oh, any trades that happened below this level, it’s as if they did not happen. But up to this level, they happened.” And what I would love to be able to do in this case is peek into the books and find out who really benefitted from having the floor of the broken trades be set at that level. And I will be shocked if it does not turn out that it is the most well-connected players who ended up at the best advantage off of that.

 So my view, and this is perhaps cynical, is that the rules get changed rather frequently and this erodes the most fundamental underpinnings of a market, which is that it needs to be free and fair. As soon as you have arbitrariness in there which clearly – it is not arbitrary, because arbitrary sounds random – as soon as you have rule-changing that clearly benefits one set of players over another on a consistent basis, it’s only a matter of time before people lose faith, refuse to participate, and do what I did which is just default into the physical market which was a set of decisions I made a while ago.

Eric Sprott:  Sure, well, I think that just the fact that the CFTC did what they did in the Hunt Brothers situation, where you could only liquidate, which is a bit of a joke. And even its most recent example, where you just pile on these margin rate increases as it is working for the shorters. And the fact that they have had this CFTC investigation into the silver manipulation of 2008 with no results, not withstanding Bart Chilton coming out and saying it seems obvious there was some manipulation going on. So the CFTC, I think, has abandoned their principles here.

Chris Martenson:  Yeah, well certainly, there is some complicity in there. And where there is smoke there is fire. It is not a clean story at this point. That much is absolutely clear. So what I would like to do now is ask another important question for people I think you have got some insight into here, for sure, is gold versus silver. I have always maintained a 2/3 to 1/3 gold to silver ratio on a value basis as sort of my general rule of thumb. And I invest in them for different reasons. Gold for me is a monetary asset. I invest in it because there is always the option value that gold will be remonetized on the international scale. Pick a number for what it might be worth under that scenario. Silver to me is still primarily an industrial metal and one without useful substitutes in many critical applications. So I split those metals and do not lump them both as precious in the sense that they have the same characteristics. What is your view there?

Eric Sprott:  Well, my view is this. That I think silver should trade something like 16-to-1 ratio to gold. If the gold price was $1,600.00, silver should be $100.00. It has always historically been the rate. If gold was made a currency, which I think it will be, I think the market has already made it a reserve currency, the general market. You still need something for exchange that is workable. In other words, you can’t be exchanging one tenth of an ounce of gold for $150.00 bucks, I mean, try to get it down to $10.00 bucks. I mean, it is impossible, because whatever you have in your hand would be so small it would be unrecognizable. And therefore I think that when that day comes, silver would also be included as a currency. And we are sitting here with theoretically a billion ounces of silver available, which today is only worth $36 billion dollars. You cannot have something in the currency that is only worth $36 billion dollars because it serves no purpose. There is just not enough of it around. So I happen to be of the school of thought that silver should out performgold and we came of that view strongly in the middle of last year, just about this time. And it has sort of demonstrated that certainly in the last twelve months. And I think that that will continue. So I tend to favor silver over gold these days.

Chris Martenson:  Right, just on a price appreciation and a ratio basis, we’re agreed, and the fundamental supply-demand equation there is also I assume driving that decision at some point on that point of view.

Eric Sprott:  It is

Chris Martenson:  So here we are, and it is 2011; where do you see – if you are willing to do this – where do you see gold going to? Pick a number, 2015 – 2020. I mean where do you see it ultimately getting to? What I am really trying to back around into in this question is understanding when do we know it is time to sell? Like, there is always a time to be long and then there is a time to exit. What does that look like for you?

Eric Sprott:  First of all you can’t tell where it is going to go, because you have to assess events that will happen in the future that have not happened yet. So for example, if we both agreed there is going to be a QE3? Wow, no doubt it quickly goes to $2,000.00. If it is QE4, 5 and 6, it is almost unlimited. So it is hard to identify a price. I just think it is for sure going higher, depending on the actions of the government. But that rate of escalation may accelerate here. When people ask me when it is over, I sort of look at three things: one would be if you saw some kind of exponential move and you just thought that the gold and silver market will become maniacal and you might just say okay fine, it is over, that is number one. Number two would be if governments around the world and central banks of the world started acting responsibly, then they are taking away momentum out of the gold and silver markets. I do not see that happening however. And of course, the third thing, which is kind of obvious, is if they make gold and silver reserve currencies, well you do not need to own them anymore, depending on the circumstances at the time. So those are the three things I kind of look to. The most obvious would be governments and central banks getting responsible. And I just see no signs of that whatsoever. In fact, I almost think that their irresponsibility is increasing as time going on here.

Chris Martenson:  I completely agree. I have several of the same signposts, and I have one other one, which is keeping my eye carefully on the role of the dollar as the world’s reserve currency. If that starts to slip in earnest, that is where I pile a lot of dollars into things, gold and silver being two very obvious choices for me at that moment. So I really need to thank you for your time here. And I follow your writings very closely. I love your missives; they are always packed with information. If people want to follow you, or find out more about the funds you offer and operate, how do they do that?

Eric Sprott:  Well, they can go to Sprott.com and all the things that we write on the various markets. And as you are aware, we have been focusing in on precious metals, particularly silver lately. And we have some pretty interesting analysis of the silver market. We also have given many, many commentaries on the economic outlook over the last fifteen-odd years and most of those articles have been reasonably prescient in predicting most of the things that have happened. So if they go to Sprott.com, all the information is available. If they are interested in the purchase of gold and silver Maple Leafs we have a little web site called Sprott Money where we are involved in that market.

Chris Martenson:  Fantastic. Well, thank you so much for your time today. I hope we can do this again, and best of luck this year.

Eric Sprott:  Thank you very much, Chris; all the best to you.

For more on the rationale for owning precious metals, read Chris' recent report on The Screaming Fundamentals for Owning Gold and Silver