Eric Sprott’s silver lining to banking crises


Transcription of Finance News Network Interview with Chairman of Sprott Inc, Eric Sprott
Lelde Smits: Hello, I’m Lelde Smits for Australia’s Finance News Network and joining me in Hong Kong is Eric Sprott, Chairman of Canadian based asset manager, Sprott Inc. Eric, welcome back to the show and great to speak with you here at Mines & Money.
We all know you’re a big fan of precious metals. What do you believe are the biggest macro factors that will drive up their prices over the next five years?
Eric Sprott: Well it’s sort of the same factors that have been operative for a long time; one is that I think there’s a physical shortage of gold that’s been supplied by the western central banks surreptitiously. We now have the tail winds of printing of money, we have the further tail wind of bank runs; and we may get one now as we see what’s going on in Europe that we might experience another bank run. So those are the kind of key things that I watch right now.
Lelde Smits: So which of these global threats that you mention are most concerning to you?
Eric Sprott: Well the biggest threat is we have way too much debt versus the productive engine that has to take care of the debt. And we seem to believe that you solve debt problem by issuing more debt; you know we’re going to solve the Cyprus problem by giving them $17 billion in more debt- it’s not going to solve any problem at all. The productive engine is not capable of servicing the debt.
Lelde Smits: Let’s get to your outlook now for gold and silver. When we last spoke at the end of 2011 you predicted gold would be north of $US2000 an ounce by mid 2012 and it is yet to break through that barrier. How have you adjusted your forecasts since?
Eric Sprott: I have not changed my forecast. In fact I think, where’s the price of gold going to go, it’s going to be in the thousands somewhere - the multi-thousands in my mind. As I say we keep printing money, we have no economic growth, we have a banking crisis almost every week somewhere. And sooner or later people will figure out that gold is something they should own.
Lelde Smits: But Eric, could you put a timeframe on when we could expect the price of gold to break through that $US2,000 barrier?
Eric Sprott: Well you know the gold’s gone up, I think it’s compounded at 16 per cent a year for 12 years. I see no reason why it wouldn’t continue to do that, and in fact there are more reasons for it to do it as we now have all developed countries printing money.
You know when you see Japan coming in saying ‘we’re going to cause inflation,’ you couldnever imagined when we started in this gold business that we’d have those sort of tail winds behind us but that’s what people are doing so I think it will pick up the speed of appreciation over time here.
Lelde Smits: So Eric, how does your outlook for the price of gold compare to your forecasts for the price of silver?
Eric Sprott: Well as you know I happen to believe that this is the decade for silver, and why do I say that? Because I see what people are doing with their money in terms of investing in silver, and silver used to trade at a 16:1 ratio to gold - it trades at a 55:1 ratio to gold, but I see lots of buying in the silver market visa vie the gold market.
Silver’s a very, very small market and I think silver will triple the performance of gold this decade. And, we’re seeing part of it already, of course we did get up to $50 and then we faded again. But I think silver will re-assert itself - I’m an optimist for gold - but I think silver is the place to be.
Lelde Smits: Turning to investments and, generally speaking, if investors want to get a piece of the action they have the options of buying financial products linked to the metals, purchasing mining stocks or bullion. Eric, how much would you allocate to each asset class?
Eric Sprott: I’m a great believer in the physical, that’s the first thing, so I think everybody should have some physical metal. If you’re young and you’re into capital appreciation, which I think probably most your viewers might be, I think that right here at these levels I think the stocks are way better value than the metals. And typically, they’ve out-performed the metals by at least 2-3 to 1. So if we’re correct in our thesis that selling gold are going to go higher here, the stocks are going to superbly out-perform the metals. And you know, if they’re risk tolerant I think that’s where they should put their money.
Lelde Smits: As you mention stocks - We’re here at Mines and Money in Hong Kong, dominated by a multitude of Australian mining companies. Have any caught your attention since we last spoke?
Eric Sprott: There’s lots of interesting companies in Australia and we watch them very closely.
Lelde Smits: When we last spoke you did highlight Ramelius Resources Limited (ASX:RMS), Silver Lake Resources Limited (ASX:SLR), Gold Fields Limited (ASX:NGF) and South Boulder Mines Limited (ASX:STB): How has your exposure changed to them since?
Eric Sprott: Well probably in all of them we have a lesser interest, maybe less so with Silver Lake, I mean it’s been by far the better of those three. South Boulder we’re still a big shareholder, Ramelius we’re still a big shareholder; they’ve both been very negatively affected by this decline in all small resource stocks, but we still would have a very serious holding but not nearly as much as we had before. Because most natural resource, particularly precious metals funds, have had redemptions. So you’re forced to sell things whether you think they’re wonderful or not. 
Lelde Smits: And have any new entrants entered your hot picks in the precious metals segment?
Eric Sprott: Not really. What I’m focusing on now is trying to find producers or near-producers that are massively undervalued by the market, who can pay a big dividend. And so far my focus has been in North America, but we’re always open to the opportunity of finding the same situation in Australia - Where a near mine producer if they decide not to build the next mine, could pay a very significant dividend. Because I think in the zero interest rate world, that’s the key to moving these mining stocks.
Lelde Smits: Finally Eric, for the investor wishing to preserve and grow their wealth what’s your number one piece of advice?
Eric Sprott: Well I can tell you I don’t think they should own bonds, I don’t think they should own stocks and I think that they should own anything precious metal oriented whatsoever. That’s where they should be.
Lelde Smits: Eric Sprott, thank you so much for joining us in Hong Kong and for your outlook and insights today.
Eric Sprott: Lelde, my pleasure.