Gold massively underinvested - silver data overwhelming: Eric Sprott

Speaking at GATA's sold-out Gold Rush conference in London, Eric Sprott affirmed his strong views on gold and his even more positive thoughts on silver.

Lawrence Williams
August 6, 2011
www.mineweb.com
LONDON

Why is the Gold Anti Trust Association (GATA) scorned by much of the mainstream financial and gold analytical community? As has been the pattern in many sectors the existing establishment tries to dismiss GATA's ideas and data as crackpot economics and conspiracy theories
and its followers as a bunch of right wing nutters. Indeed some of them may be such, but if one looks at the attendees at GATA's Gold Rush event held in London this week, the audience, as GATA secretary Chris Powell pointed out several times, came from 31 countries and included some (not a huge number) from the mainstream European financial community, but seemingly few from the establishment UK financial sector. Which is a shame as whatever one thinks of GATA and its followers many of the pro-gold and pro-silver arguments espoused by the speakers at the event - and many of these have extremely impressive cvs - do have a value and could do with being heard by those who control other people's money because, let's face it, much of what GATA has stood for has proved to be correct over the period over which it has been in existence.
While GATA itself does not necessarily directly promote gold and silver, nor predict prices, it has amongst its key followers many who do. GATA primarily was set up to fight what it saw as manipulation of the gold markets by central banks, governments and the financial establishment to the detriment of the yellow metal and its holders, and has indeed unearthed much evidence from official documents and statements which does appear to support this view - although to some it is a matter of semantics as to where government currency market controls (manipulation if you will) are part of a government's weaponry to control its own domestic economy, or whether there is some much deeper malign influence at work. If one considers gold as money, which GATA followers very definitely do - and there is evidence that the mainstream financial community is again beginning to think this way too - then it could be that such gold price control might be considered an integral weapon in government policy.
Perhaps GATA is its own worst enemy in that it has tended to itself disparage the mainstream and some of its institutions by pouring scorn on the gold and banking establishment. Not always the best way of winning friends and influencing people! The World Gold Council and GFMS (bought yesterday by Thomson Reuters) seem to come in for particular vilification. But maybe if from its outset GATA had tried to work and reason with the gold establishment (maybe it did but found it beating its head against a brick wall) rather than antagonistically against it, its findings and reams of supporting official data might have attracted greater support.
Be this as it may there are indeed some charismatic figures of adulation within GATA and its supporters. Jim Sinclair and Eric Sprott (a newly outed Canadian billionaire who has got to this level by putting his money where his mouth is) come in for particular, almost messianic, adulation from GATA followers, many of whom will have profited from following their advice.
This preamble over - which probably won't have earned the writer many new friends from within the mainstream gold sector (but one needs to keep an open mind when trying to come up with a balanced viewpoint) - it is perhaps worth commenting in particular on Eric Sprott's keynote presentation at the conference dinner on Friday night. Not that he necessarily said anything in particular which he hasn't before, but his track record in the sector has been good, indeed exceptional. The writer may argue with his expectations for the silver price for example, and its return to a 16:1 Gold:Silver ratio (a level last seen when the Hunt Brothers tried to corner the market) but his belief in gold and silver has served him, and his investor followers, well as his billionaire status would attest.
In Sprott's view gold has been very much the metal of the past decade, and he looks to silver as that for the next decade. Indeed he is probably nowadays the world's pre-eminent silver bull. He still sees gold as massively underinvested and reckons that his analysts' research into silver now show that the data on silver overwhelmingly points to a huge run-up in the silver price ahead of us. He describes the April/May collapse in silver as a remarkably orchestrated manipulation of the market (the price famously fell $6 in a matter of minutes on a Sunday evening when all major markets were closed) by short sellers caught in a huge squeeze and faced with losing billions!
While this may have made silver investors more cautious for the moment, Sprott reckons the data suggests that there is a huge imbalance between demand and supply and the metal is set for a major rerating which indeed will bring the Gold:Silver ratio down to much lower levels. He points out that the major physical supply sources to the investment sector almost all report that in dollar terms investors are buying at least as much physical silver as gold - and also that it is increasingly difficult to take physical delivery of large quantities of the metal. For example in securing 15 million ounces for his company's Physical Silver Trust Sprott avers that it took a full three months before delivery of the metal was received and some of the delivery had not even been mined when the order was put in!
Sprott believes that gold will continue to rise and silver will rise far faster - he certainly does not believe the silver price can stay where it is with the banking system "an absolute disaster" and the economy "awful", with consumer confidence "sick and getting sicker".
Government will have to continue to print more and more money. Money will be needed to bail out major banks and economies as the world cannot afford to see another domino fall. As the knock-on effects of the Lehman Brothers collapse showed only too well the global financial system is so interlinked that another major failure could have cataclysmic consequences worldwide.
And printing more and more money effectively means the world's major currencies will continue being devalued against gold and silver - which represent the only constant readily available.
Sprott's message is clear, as is that indirectly of GATA and its supporters - You have to own gold and silver to maintain any form of financial stability in this time of economic turmoil.

Related Gold Links