- Source:
Saturday, December 29, 2012
People are Losing Faith in the Financial System
Thursday, December 27, 2012
Eric Sprott's Forecast for Gold and Silver in 2013
"I must admit that for the longest time, and for many years now, I have always asked how long can this system hold together? I never would have imagined that the market would buy into printing money, but I guess the market bought into printing money as some great salvation, even though it's caused nothing to happen economically. Here we are in 2012, and we might very well have a worldwide recession after years and years of money printing. So it is very difficult to forecast where it is going to go. Some of the people that I rely on suggest that you're either going to have hyper-inflation or defaults. It's going to be tough to imagine defaults if the central banks just say, 'Well, we'll basically buy everything out there,' which means the more likely thing you're going to end up with will be some kind of hyper-inflation.
Some of the people I rely on suggest there is about a 40% chance of hyper-inflation starting in 2013 and about a 90% of it starting in 2014, so that's what I would imagine happens. We have all this silly printing and supporting of financial markets, and then we are going to find out that there is inflation in the system where gold and silver will be the telling of it. Once it gets ingrained that the currency is being devalued, then I think that precious metals will just continue to move forward. Stocks can go up in a hyper-inflationary environment, but it certainly wouldn't be your first priority. The first priority would be to own gold and silver. I think we will see signs of that next year. I don't necessarily see any great economic strength because everything it's done so far has been to support the financial system, not the economy. I think we are looking for lethargic growth next year and the biggest element yet again will be the action in the precious metals."
Some of the people I rely on suggest there is about a 40% chance of hyper-inflation starting in 2013 and about a 90% of it starting in 2014, so that's what I would imagine happens. We have all this silly printing and supporting of financial markets, and then we are going to find out that there is inflation in the system where gold and silver will be the telling of it. Once it gets ingrained that the currency is being devalued, then I think that precious metals will just continue to move forward. Stocks can go up in a hyper-inflationary environment, but it certainly wouldn't be your first priority. The first priority would be to own gold and silver. I think we will see signs of that next year. I don't necessarily see any great economic strength because everything it's done so far has been to support the financial system, not the economy. I think we are looking for lethargic growth next year and the biggest element yet again will be the action in the precious metals."
- Source, Seeking Alpha:
Tuesday, December 25, 2012
Why are (Smart) Investors Buying Fifty Times More Physical Silver than Gold?
By: Eric Sprott
As long-time students of precious metals investing, there are certain things we understand. One is that, historically, the availability ratio of silver to gold has had a direct influence on the price of the metals. The current availability ratio of physical silver to gold for investment purposes is approximately 3:1. So, why is it that investors are allocating their dollars to silver at a much higher ratio? What is it that these “smart” investors understand? Let’s have a look at the numbers and see if it’s time for investors to do as a wise man once said and “follow the money.”
Average annual gold mine production is approximately 80 million ounces, which together with an estimated average 50 million ounces of annual recycled gold, totals around 130 million ounces available per year. In comparison, annual mined silver production has averaged around 750 million ounces, while recycled silver is estimated at 250 million ounces per year, which adds up to approximately 1 billion ounces. Using this data, there is roughly 8 times more silver available to buy than there is gold. However, not all gold and silver is available for investment purposes, due to their use in industrial applications. It is estimated that for investment purposes (jewelry, bars and coins), the annual availability of gold is roughly 120 million ounces, and of silver it is 350 million ounces. Therefore, the ratio of physical silver availability to gold availability is 350/120, or ~3:1.1
Now, let’s examine how investors are allocating their investments between gold and silver. The data below is from the US Mint showing gold and silver sales in ounces:
As long-time students of precious metals investing, there are certain things we understand. One is that, historically, the availability ratio of silver to gold has had a direct influence on the price of the metals. The current availability ratio of physical silver to gold for investment purposes is approximately 3:1. So, why is it that investors are allocating their dollars to silver at a much higher ratio? What is it that these “smart” investors understand? Let’s have a look at the numbers and see if it’s time for investors to do as a wise man once said and “follow the money.”
Average annual gold mine production is approximately 80 million ounces, which together with an estimated average 50 million ounces of annual recycled gold, totals around 130 million ounces available per year. In comparison, annual mined silver production has averaged around 750 million ounces, while recycled silver is estimated at 250 million ounces per year, which adds up to approximately 1 billion ounces. Using this data, there is roughly 8 times more silver available to buy than there is gold. However, not all gold and silver is available for investment purposes, due to their use in industrial applications. It is estimated that for investment purposes (jewelry, bars and coins), the annual availability of gold is roughly 120 million ounces, and of silver it is 350 million ounces. Therefore, the ratio of physical silver availability to gold availability is 350/120, or ~3:1.1
Now, let’s examine how investors are allocating their investments between gold and silver. The data below is from the US Mint showing gold and silver sales in ounces:
Source: US Mint (www.usmint.gov)
As you can see, investors are choosing to buy silver at a ratio to gold that is well above what is available. This uptrend doesn’t show any signs of slowing either. The ratio of the physical silver to gold is both rising and extraordinarily above the availability ratio of 3:1.
We can also use other data such as the most recent issues of the Sprott Physical Gold and Silver Trusts. The last Gold Trust issue in September 2012 raised US$393 million and the last Silver Trust issue raised US$310 million. On the basis of prices for each metal at the time of issue, we could purchase ~213 thousand ounces of gold and ~9.1 million ounces of silver. This represents a purchase ratio of 43:1.
If we examine ETF holdings in both gold and silver, we note that in the period from 2007 to 2012, the increase in silver holdings amounted to 12,000 tonnes, compared to 1,200 tonnes of gold – meaning, investors purchased ten times more silver than gold.
These are only three factual data points to consider, but there are other indications that silver investment demand is way out of line with availability. Our favourite question to the bullion dealers we meet, is to ask the ratio of their dollar sales in gold versus silver. The answer is that dollar sales are equal, which means that physical silver sales relative to gold are greater than 50:1.
A recent news headline on Mineweb read, “Silver Sales to Outshine Gold in India.2” It went on to quote a bullion dealer that “investors and jewelry lovers prefer silver jewelry these days.” As the largest importer of gold in the world, it would be impossible for India to purchase an equivalent amount of silver, as it would require more than one billion ounces, essentially more than the current annual mine production.
While these last two confirmations of silver demand are anecdotal, the statistics from the US Mint, the ETFs, and our Physical Trust issues, are factual.
For the time being, the silver price is essentially set in the paper market where the daily average trade on the Comex is approximately 300 million ounces. An outrageous number when you compare it to the daily mine production of about 2 million ounces. As Bart Chilton, Commissioner of the Commodity Futures Trading Commission stated on October 26, 2010, “I believe there have been repeated attempts to influence prices in silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act have taken place in the silver market and any such violation of the law in this regard should be prosecuted.”3
Which brings us back to the phrase “Follow the money.” In our view, it is almost inconceivable that investors would allocate as many dollars to silver as they would to gold, but that is what the data shows.
The silver investment market is very small. While the dollar value of gold in the world approaches $9 trillion, the value of silver in the forms of jewelry, coins, bars and silverware is estimated at around $150 billion (5 billion ounces at $30 per ounce). This is a ratio of 60:1 in dollar terms.4
How long can investors continue to buy silver at the current ratios when the availability for investment is only 3:1? We are surprised that the price of silver has remained at such a depressed level compared to gold. Historically, the price ratio between gold and silver has been 16:1, when both were currencies. Today the ratio is 55:1, so what are the numbers telling us? We believe this is one of those times when smart investors will be well rewarded to “Follow the money.”
On behalf of all of us at Sprott, I wish you safe and happy Holidays and a prosperous New Year.
P.S. – US Mint Sold Out of Silver Eagle Bullion Coins Until January 7, 2013
The Mint recently informed authorized purchasers that all remaining inventories of 2012-dated Silver Eagle bullion coins had sold out and no additional coins would be struck. Since the 2013-dated coins will not be available to order until January 7, 2013, this leaves a three week void for the Mint’s most popular bullion offering.
As you can see, investors are choosing to buy silver at a ratio to gold that is well above what is available. This uptrend doesn’t show any signs of slowing either. The ratio of the physical silver to gold is both rising and extraordinarily above the availability ratio of 3:1.
We can also use other data such as the most recent issues of the Sprott Physical Gold and Silver Trusts. The last Gold Trust issue in September 2012 raised US$393 million and the last Silver Trust issue raised US$310 million. On the basis of prices for each metal at the time of issue, we could purchase ~213 thousand ounces of gold and ~9.1 million ounces of silver. This represents a purchase ratio of 43:1.
If we examine ETF holdings in both gold and silver, we note that in the period from 2007 to 2012, the increase in silver holdings amounted to 12,000 tonnes, compared to 1,200 tonnes of gold – meaning, investors purchased ten times more silver than gold.
These are only three factual data points to consider, but there are other indications that silver investment demand is way out of line with availability. Our favourite question to the bullion dealers we meet, is to ask the ratio of their dollar sales in gold versus silver. The answer is that dollar sales are equal, which means that physical silver sales relative to gold are greater than 50:1.
A recent news headline on Mineweb read, “Silver Sales to Outshine Gold in India.2” It went on to quote a bullion dealer that “investors and jewelry lovers prefer silver jewelry these days.” As the largest importer of gold in the world, it would be impossible for India to purchase an equivalent amount of silver, as it would require more than one billion ounces, essentially more than the current annual mine production.
While these last two confirmations of silver demand are anecdotal, the statistics from the US Mint, the ETFs, and our Physical Trust issues, are factual.
For the time being, the silver price is essentially set in the paper market where the daily average trade on the Comex is approximately 300 million ounces. An outrageous number when you compare it to the daily mine production of about 2 million ounces. As Bart Chilton, Commissioner of the Commodity Futures Trading Commission stated on October 26, 2010, “I believe there have been repeated attempts to influence prices in silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act have taken place in the silver market and any such violation of the law in this regard should be prosecuted.”3
Which brings us back to the phrase “Follow the money.” In our view, it is almost inconceivable that investors would allocate as many dollars to silver as they would to gold, but that is what the data shows.
The silver investment market is very small. While the dollar value of gold in the world approaches $9 trillion, the value of silver in the forms of jewelry, coins, bars and silverware is estimated at around $150 billion (5 billion ounces at $30 per ounce). This is a ratio of 60:1 in dollar terms.4
How long can investors continue to buy silver at the current ratios when the availability for investment is only 3:1? We are surprised that the price of silver has remained at such a depressed level compared to gold. Historically, the price ratio between gold and silver has been 16:1, when both were currencies. Today the ratio is 55:1, so what are the numbers telling us? We believe this is one of those times when smart investors will be well rewarded to “Follow the money.”
On behalf of all of us at Sprott, I wish you safe and happy Holidays and a prosperous New Year.
P.S. – US Mint Sold Out of Silver Eagle Bullion Coins Until January 7, 2013
The Mint recently informed authorized purchasers that all remaining inventories of 2012-dated Silver Eagle bullion coins had sold out and no additional coins would be struck. Since the 2013-dated coins will not be available to order until January 7, 2013, this leaves a three week void for the Mint’s most popular bullion offering.
- Source: A recent Article by Eric Sprott:
Saturday, December 22, 2012
I Think We’re in for a Shortage of Physical Gold
(This video cannot be embedded, please click the image to view)
- Source:
Wednesday, December 19, 2012
Countries Repatriating Gold
"There is (also) lots of discussion about repatriating gold, and that goes to Germany, Austria, now the Netherlands. I think the more instructive example was when they (Austrian politicians) asked the Austrian Finance Minister, 'What percent of our gold is held in Austria?' I think the number was something like 13% or 17%, and the rest was in New York and London."
- Eric Sprott, via a recent King World News interview:
Friday, December 14, 2012
Silver to Outshine Gold as the Investment of this Decade
And despite the recent stagnation in the price of gold, the metal has been in a bull market for more than a decade. But how much of the run-up in gold is driven by factors we talk about every day (such as QE and debt downgrades), and how much is driven by issues such as the 20-year bear market in gold that preceded the recent run, as structural supply changes forced the inevitable price adjustment that we see today? We talk to Eric Sprott, CEO of Sprott Asset Management, about how he has weighed these factors over the years.
Plus, US and UK regulators have published a joint paper about plans to deal with failing global banks. Martin Gruenberg, chairman of the FDIC, and Paul Tucker, deputy governor of the Bank of England, wrote an article in the op-ed pages of the Financial Times stating that the plans are the first steps to ending the global problem of "too big to fail." The paper outlines a strategy which includes losses for shareholders, removing senior management, and converting debt into equity in order to provide capital. Capital is one solution to mitigate the liability of massive credit expansion...if only we had hard money...Lauren breaks it down in Word of the Day.
And, have you ever wondered what 315 billion dollars in gold bullion looks like? Chemistry professor Martyn Poliakoff visited the gold vault at the Bank of England to find out. Lauren and Demetri discuss the insides of the gold vault in today's Loose Change."
- Source, RT News, Capital Account:
Monday, December 10, 2012
The Silver Shorts are Trapped
Eric Sprott was recently interviewed by King World News. In this powerful interview, Eric Sprott is finally able to discuss one of his favorite subjects again, silver. Topics of this interview are the tight supply of the gold and silver markets, a huge price move that he see's coming in the future and also how the silver shorts are essentially trapped.
Listen to this full interview at King World News, here:
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2012/12/2_Eric_Sprott.html
Listen to this full interview at King World News, here:
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2012/12/2_Eric_Sprott.html
Wednesday, December 5, 2012
Leased Out Gold is Not Coming Back
"There is (also) lots of discussion about repatriating gold, and that goes to Germany, Austria, now the Netherlands. I think the more instructive example was when they (Austrian politicians) asked the Austrian Finance Minister, ‘What percent of our gold is held in Austria?’ I think the number was something like 13% or 17%, and the rest was in New York and London.
At the same time he (Austria’s Finance Minister) mentioned they had been earning income on leasing the gold. These central banks have deposited their gold with the Fed or the Bank of England, and in turn it has been leased out. Of course when gold is leased out it ultimately gets sold in its physical form to someone who is not likely to return it.
For example, if our ETF buys gold, it’s not going back. If the Chinese buy gold, it’s not coming back into the system. If the Indians buy gold, it’s not coming back. So the central bank has, in essence, an IOU from a bullion bank on their balance sheet, but if they exercised that IOU, there is no way they would get that gold back."
At the same time he (Austria’s Finance Minister) mentioned they had been earning income on leasing the gold. These central banks have deposited their gold with the Fed or the Bank of England, and in turn it has been leased out. Of course when gold is leased out it ultimately gets sold in its physical form to someone who is not likely to return it.
For example, if our ETF buys gold, it’s not going back. If the Chinese buy gold, it’s not coming back into the system. If the Indians buy gold, it’s not coming back. So the central bank has, in essence, an IOU from a bullion bank on their balance sheet, but if they exercised that IOU, there is no way they would get that gold back."
- Eric Sprott during a recent King World News interview, read the full interview here:
Saturday, December 1, 2012
Gold - Solution to the Banking Crisis
By: Eric Sprott & David Baker
The Basel Committee on Banking Supervision is an exclusive and somewhat mysterious entity that issues banking guidelines for the world’s largest financial institutions. It is part of the Bank of International Settlements (BIS) and is often referred to as the Central Banks’ central bank. Ever since the financial meltdown four years ago, the Basel Committee has been hard at work devising new international regulatory rules designed to minimize the potential for another large-scale financial meltdown. The Committee’s latest ‘framework’, as they call it, is referred to as “Basel III”, and involves tougher capital rules that will force all banks to more than triple the amount of core capital they hold from 2% to 7% in order to avoid future taxpayer bailouts. It doesn’t sound like much of an increase, and according to the Basel group’s own survey, the 100 largest global banks will only require approximately €370 billion in additional reserves to comply with the new regulations by 2019.1 Given that the Spanish banks alone are believed to need well over €100 billion today simply to keep their capital ratios in check, it is hard to believe €370 billion will be enough protect the world’s “too-big-to-fail” banks from future crises, but it is indeed a step in the right direction.2
Initial implementation of Basel III’s capital rules was expected to come into effect on January 1, 2013, but US banking regulators issued a press release on November 9th stating that they wouldn’t meet the deadline, citing a large volume of letters (ie. complaints) received from bank participants and a “wide range of views expressed during the comment period”.3 It has also been revealed that smaller US regional banks are loath to adopt the new rules, which they view as overly complicated and potentially devastating to their bottom lines. The Independent Community Bankers of America has even requested a Basel III exemption for all banks with less than $50 billion in assets,“in order to avoid large-scale industry concentration that would curtail credit for consumers and business borrowers, especially in small communities.”4 The long-term implementation period for all Basel III measures actually extends to 2019, so the delays are not necessarily meaningful news, but they do illustrate the growing rift between the US banking cartel and its European counterpart regarding the Basel III framework. JP Morgan’s CEO Jamie Dimon is on record having referred to Basel III regulations as “un-American” for their favourable treatment of European covered bonds over US mortgage-backed securities.5 Readers may also remember when Dimon was caught yelling at Mark Carney, Canada’s (soon to be former) Central Bank Governor and head of the Financial Stability Board, during a meeting in Washington to discuss the same topic.6 More recently, Deutsche Bank’s co-chief executive Juergen Fitschen suggested that the US regulators’ delay was “hurting trans-Atlantic relations” and creating distrust... stating, “when the whole thing is called un-American, I can only say in disbelief, who can still believe in this day and age that there can be purely European or American rules.”7Suffice it to say that Basel III implementation has not gone as smoothly as planned.
One of the more relevant aspects of Basel III for our portfolios is its treatment of gold as an asset class. Documents posted by the Bank of International Settlements (which houses the Basel Committee) and the United States FDIC have both referenced gold as a “zero percent risk-weighted item” in their proposed frameworks, which has launched spirited rumours within the gold community that Basel III may define gold as a “Tier 1” asset, along with cash and AAA-government securities.8,9 We have discovered in delving further that gold’s treatment in Basel III is far more complicated than the rumours suggest, and is still, for all intents and purposes, very much undecided. Without burdening our readers with the turgid details, it turns out that the reference to gold as a “zero-percent risk-weighted item” only relates to its treatment in specific Basel III regulation related to the liquidity of bank assets vs. its liabilities. (For a more comprehensive explanation of Basel III’s treatment of gold, please see the Appendix). But what the Basel III proposals do confirm is the regulators’ desire for banks to improve their liquidity position by holding a larger amount of “high-quality”, liquid assets in order to improve their overall solvency in the event of another crisis.
Herein lies the problem, however: the Basel III regulators have stubbornly held to the view that AAA-government securities constitute the bulk of those high quality assets, even as the rest of the financial world increasingly realizes they are anything but that. As banks move forward in their Basel III compliance efforts, they will be forced to buy ever-increasing amounts of AAA-rated government bonds to meet post Basel III-compliant liquidity and capital ratios. As we discussed in our August newsletter entitled, “NIRP: The Financial System’s Death Knell”, the problem with all this regulation-induced buying is that it ultimately pushes government bond yields into negative territory - as banks buy more and more of them not because they want to but because they have to in order to meet the new regulations. Although we have no doubt in the ability of governments’ issue more and more debt to satiate that demand, the captive purchases by the world’s largest banks may turn out to be surprisingly high. Add to this the additional demand for bonds from governments themselves through various Quantitative Easing programs… AND the new Dodd Frank rules, which will require more government bonds to be held on top of what’s required under Basel III, and we may soon have a situation where government bond yields are so low that they simply make no sense to hold at all.10,11 This is where gold comes into play.
If the Basel Committee decides to grant gold a favourable liquidity profile under its proposed Basel III framework, it will open the door for gold to compete with cash and government bonds on bank balance sheets – and provide banks with an asset that actually has the chance to appreciate. Given that US Treasury bonds pay little to no yield today, if offered the choice between the “liquidity trifecta” of cash, government bonds or gold to meet Basel III liquidity requirements, why wouldn’t a bank choose gold? From a purely ‘opportunity cost’ perspective, it makes much more sense for a bank to improve its balance sheet liquidity profile through the addition of gold than it does by holding more cash or government bonds – if the banks are given the freedom to choose.
The world’s non-Western central banks have already embraced this concept with their foreign exchange reserves, which are vulnerable to erosion from ‘Central Planning’ printing programs. This is why non-Western central banks are on track to buy at least 500 tonnes of net new physical gold this year, adding to the 440 tonnes they collectively purchased in 2011.12 In the un-regulated world of central banking, gold has already been accepted as the de-facto forex diversifier of choice, so why shouldn’t the regulated commercial banks be taking note and following suit with their balance sheets? Gold is, after all, one of the only assets they can all own simultaneously that will actually benefit from their respective participation through pure price appreciation. If banks all bought gold as the non-Western central banks have, it is likely that they would all profit while simultaneously improving their liquidity ratios. If they all acted in concert, gold could become the salvation of the banking system. (Highly unlikely… but just a thought).
So far there have only been two banking jurisdictions that have openly incorporated gold into their capital structures. The first, which may surprise you, is Turkey. In an unconventional effort to increase the country’s savings rate and propel loan growth, Turkish Central Bank Governor Erdem Basci has enacted new policies to promote gold within the Turkish banking system. He recently raised the proportion of reserves Turkish banks can keep in gold from 25 percent to 30 percent in an effort to attract more bullion into Turkish bank accounts. Turkiye Garanti Bankasi AS, Turkey’s largest lender, now offers gold-backed loans, where “customers can bring jewelry or coins to the bank and take out loans against their value.” The same bank will also soon “enable customers to withdraw their savings in gold, instead of Turkish lira or foreign exchange.”13 Basci’s policies have produced dramatic results for the Turkish banks, which have attracted US$8.3 billion in new deposits through gold programs over the past 12 months - which they can now extend for credit.14 Governor Basci has even stated he may make adjusting the banks’ gold ratio his main monetary policy tool.15
The other banking jurisdiction is of course that of China, which has long encouraged its citizens to own physical gold. Recent reports indicate that the Shanghai Gold Exchange is planning to launch an interbank gold market in early December that will “pilot with Chinese banks and eventually be open to all.”16 Xie Duo, general director of the financial market department of the People’s Bank of China has stated that, “[China] should actively create conditions for the gold market to become integrated with the international gold market,” which suggests that the Chinese authorities have plans to capitalize on their growing gold stockpile.17 It is also interesting to note that China, of all countries, has been adamant that its 16 largest banks will meet the Basel III deadline on January 1, 2013.18 We can’t help but wonder if there is any connection between that effort and China’s recent increase in physical gold imports. Could China be positioning itself for the day Western banks finally realize they’d prefer gold over Treasuries? Possibly – and by the time banks figure it out, China may have already cornered most of the world’s physical gold supply.
If global banks’ are realistically going to improve their balance sheet diversification and liquidity profiles, gold will have to be part of that process. It is ludicrous to expect the global banking system to regain a sure footing through the increased ownership of government securities. If anything, we are now at a time when banks should do their utmost to diversify away from them, before the biggest “crowded trade” of all time begins to unravel itself. Basel III liquidity rules may be the start of gold’s re-emergence into mainstream commercial banking, although it is still not guaranteed that the US banking cartel will adopt all of the Basel III measures, and they still have years to hammer out the details. If regulators hold firm in applying stricter liquidity rules, however, gold is the only financial asset that can satisfy those liquidity requirements while freeing banks from the constraints of negative-yielding government bonds. And while it strikes us as somewhat ironic that the banking system may be forced to turn to gold out of sheer regulatory necessity, that’s where we see the potential in Basel III. After all – if the banks are ultimately interested in restoring stability and confidence, they could do worse than holding an asset that has gone up by an average of 17% per year for the last 12 years and represented ‘sound money’ throughout history.
Appendix: Gold’s treatment in Basel III
Basel III is a much more complex “framework” than Basel I or II, although we do not claim to be experts on either. It should also be mentioned that Basel II only came into effect in early 2008, and wasn’t even adopted by the US banks on its launch. Post-meltdown, Basel III is the Basel Committee’s attempt to get it right once and for all, and is designed to provide an all-encompassing, international set of banking regulations designed to avoid future bailouts of the “too-big to fail” banks in the event of another financial crisis.
Without going into cumbersome details, under the older Basel framework (Basel I), the lower the “risk weighting” regulators applied to an asset class, the less capital the banks had to set aside in order to hold it. CNBC’s John Carney writes, “The earlier round of capital regulations… government-rated bonds rated BBB were given 50 percent riskweightings. A-rated bonds were given 20 percent risk weightings. Double A and Triple A were given zero risk weightings — meaning banks did not have to set aside any capital at all for the government bonds they held.”19 Critics of Basel I argued that the risk-weighting system compelled banks to overweight their exposure to assets that had the lowest riskweightings, which created a herd-like move into same assets. This was most evident in their gradual overexposure to European sovereign debt and mortgage-backed securities, which the regulators had erroneously defined as “low-risk” before the meltdown proved them to be otherwise. The banks and governments learned that lesson the hard way.
Basel III (and Basel II) takes the same idea and complicates it further by dividing bank assets into two risk categories (credit and market risk) and risk-weighting them depending on their attributes. Just like Basel I, the higher the “riskweight” applied to an asset class, the more capital the bank is required to hold to offset them.
It is our understanding that gold’s reference as a “zero percent risk-weighted asset” in the FDIC and BIS literature only applies to gold’s “credit risk” - which makes perfect sense given that gold isn’t anyone’s counterparty and cannot default in any way. Gold still has “market-risk” however, which stems from its price fluctuations, and this results in the bank having to set aside capital in order to hold it. So for banks who hold physical gold on their balance sheet (and we don’t know of any who do, other than the bullion dealers), the gold would not be treated the same as cash or AAA-bonds for the purposes of calculating their Tier 1 ratio. This is where the gold community’s conjecture on gold as a “Tier 1” asset has been misleading. There really isn’t such a thing as a “Tier 1” asset under Basel III. Instead, “Tier 1” is merely the ratio that reflects the capital supporting a bank’s risk-weighted assets.
HOWEVER, Basel III will also be adding an entirely new layer of regulation concerning the relative liquidityof the bank’s assets and liabilities. This will be reflected in two new ratios banks must calculate starting in 2015: the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).
Just as Basel III requires risk-weights for the asset side of a bank’s balance sheet (based on credit risk and market risk), Basel III will also soon require the application of risk-weights to be applied to the LIQUIDITY profile of both the assets and liabilities held by the bank. The idea here is to address the liquidity constraints that arose during the 2008 meltdown, when banks suffered widespread deposit withdrawals just as their access to wholesale funding dried up.
This is where gold’s Basel III treatment becomes more interesting. Under the proposed LIQUIDITY component of Basel III, gold is currently labeled with a 50% liquidity “haircut”, which is the same haircut that is applied to equities and bonds. This implicitly assumes that gold cannot be easily converted into cash in a stressed period, which is exactly the opposite of what we observed during the crisis. It also requires the bank to maintain a much more stable source of funding in order to hold gold as an asset on its balance sheet. Fortunately, there is a strong chance that this liquidity definition for gold may be changed. The World Gold Council has in fact been lobbying the Basel Committee, the Federal Reserve and the FDIC on this issue as far back as 2009, and published a paper arguing that gold should enjoy the same liquidity profile as cash or AAA-government securities when calculating Basel III’s LCR and NSFR ratios.20 And as it turns out, the liquidity definitions that will guide banks’ LCR and NSFR calculations have not yet been finalized by the Basel Committee. The Basel III comment period that ended on October 22nd resulted in the deadline being pushed back to January 1, 2013, and given the recent delays with the US bank regulators, will likely be postponed even further next year. Of specific interest to us is how the Basel Committee will treat gold from a liquidity-risk perspective, and whether they decide to lower gold’s liquidity “haircut” from 50% to something more reasonable, given gold’s obvious liquidity superiority over that of equities and bonds.
The only hint we’ve heard thus far has come from the World Gold Council itself, which suggested in an April 2012 research paper, and re-iterated on a recent conference call, that gold will be given a 15% liquidity “haircut”, but we have not been able to confirm this with either the Basel Committee or the FDIC.21 In fact, all inquiries regarding gold’s treatment made to those groups by ourselves, and by other parties that we have spoken with, have been met with silence. We get the sense that the regulators have no interest in stirring the pot by mentioning anything related to gold out of turn. Given our discussion above, we can understand why they may be hesitant to address the issue, and only time will tell if gold gets the proper liquidity treatment it deserves.
- Source, Sprott Asset Management:
Wednesday, November 28, 2012
Ellis Martin Report with Sprott Money’s CEO Eric Sprott
- Source:
Tuesday, November 20, 2012
There is a Shortage of Gold
- Source USAWatchdog:
http://usawatchdog.com/central-banks-gold-likely-gone-eric-sprott/
AD: INVEST BEFORE A CRISIS HIT'S, BECAUSE AFTER IS TOO LATE:
Friday, November 16, 2012
Inequality in Wealth is Accelerating
"Meanwhile, as the Occupy movement also repeatedly highlighted, the increase in wealth inequality within the US has grown steadily over the past thirteen years. Figure 3 below shows the “Gini Ratio” of US household income, which statistically captures income inequality within the country. A Gini Ratio coefficient of 0 corresponds with perfect equality, while a coefficient of 1 describes a situation where one person has all the income, and everyone else has nothing. As can be seen, a clear trend towards inequality has been in place since the late 1960s, and that trend appears to be accelerating today. Just as weakness begets weakness, strength begets strength for those with the most wealth..."
- Excerpt from a recent article by Eric Sprott and David Baker. Read the full article here:
http://sprott.com/markets-at-a-glance/weakness-begets-more-weakness/
- Excerpt from a recent article by Eric Sprott and David Baker. Read the full article here:
http://sprott.com/markets-at-a-glance/weakness-begets-more-weakness/
Tuesday, November 13, 2012
Western Banks Have No More Gold!
Eric Sprott appears on Bloomberg TV. Where he discusses the incredibly bullish fundamentals of gold and the stellar track record it has had over the last decade. He lays out the facts and was heard saying this shocking statement:
"Central banks have one line on their balance sheets for gold and gold receivables! If they lease gold to a bullion dealer, that’s a receivable. That gold has obviously been sold into the market, but we can’t tell what’s real gold and what’s receivable"
This is a must watch video.
- Source, Bloomberg TV:
http://www.bloomberg.com/tv/
"Central banks have one line on their balance sheets for gold and gold receivables! If they lease gold to a bullion dealer, that’s a receivable. That gold has obviously been sold into the market, but we can’t tell what’s real gold and what’s receivable"
This is a must watch video.
- Source, Bloomberg TV:
http://www.bloomberg.com/tv/
Friday, November 9, 2012
Weakness Begets More Weakness
“The 99% represents the US consumer….It is the purchasing power of this massive, amorphous group that drives the US economy forward. The problem, however, is that four years into a so-called recovery, this group is still being financially squeezed from every possible angle, making it very difficult for them to maintain their standard of living, let alone increase their levels of consumption.”
- Excerpt from a recent article by Eric Sprott and David Baker. Read the full article here:
http://sprott.com/markets-at-a-glance/weakness-begets-more-weakness/
Tuesday, November 6, 2012
Sprott Asset Management's Top Five Picks
"Sprott Asset Management, managed by the infamous precious metals bull Eric Sprott, is an investment advisory firm with an estimated $9.7 billion in assets under management. Sprott's fund has investments in a wide array of asset classes, and has about 8% of his capital invested in US equities, as noted by his $762 million 13F portfolio. Among Sprott's portfolio is a wide array of stocks in the basic materials sector, which comprises close to three-fourths of his total holdings. Here's a peek at the fund's 13F portfolio, but we're going to take an in-depth look at its top five stock holdings, due to the fact that his 13F returned over 36% last quarter...
First up on our list is First Majestic Silver Corp (NYSE:AG), which has returned 28.4% in 2012 thus far. With its headquarters in Canada, First Majestic explores for and produces silver in Mexico, focusing predominantly on four different mining sites. The largest mine in the company's possession is its La Encantada site, which accounts for over half of the company's total production.
Sprott currently owns over $64 million worth of First Majestic, good for 8.4% of his total 13F portfolio. A chief driver of the stock's growth this calendar year is a record level of production, in addition to a rare, community-first approach to silver mining. The company has gone beyond country-specific environmental regulations multiple times throughout its history, most recently at its La Parrilla mine to eliminate groundwater pollution..."
First up on our list is First Majestic Silver Corp (NYSE:AG), which has returned 28.4% in 2012 thus far. With its headquarters in Canada, First Majestic explores for and produces silver in Mexico, focusing predominantly on four different mining sites. The largest mine in the company's possession is its La Encantada site, which accounts for over half of the company's total production.
Sprott currently owns over $64 million worth of First Majestic, good for 8.4% of his total 13F portfolio. A chief driver of the stock's growth this calendar year is a record level of production, in addition to a rare, community-first approach to silver mining. The company has gone beyond country-specific environmental regulations multiple times throughout its history, most recently at its La Parrilla mine to eliminate groundwater pollution..."
- Read the rest of the article at Insider Monkey, here:
Saturday, November 3, 2012
A Huge Tailwind for Gold
"I never would've imagined when I got involved in gold that I would have the benefit of kind of irresponsible money printing, bank runs that are ongoing as we witnessed in the various countries in Europe, and those two ingredients along with the QE3 which has been announced I think will be a huge tailwind for gold and other precious metals to go higher."
- Eric Sprott via a recent CNBC interview
Tuesday, October 30, 2012
Thursday, October 25, 2012
Austerity and Monetary Easing
James Turk and Eric Sprott speak in Munich Germany. They discuss the hard choices the world now faces between austerity and monetary easing. They agree that both will eventually bring a global meltdown. This video is a older video, but well worth re-watching.
- Source:
Saturday, October 20, 2012
Eric Sprott Delivers Keynote Presentation at Investorium.tv
"Sprott Asset Management CEO Eric Sprott spoke about the economy, banks, Gold, Silver and the redistribution of wealth.
A recent article written by Eric Sprott titled "Do the central banks have any Gold left" (available on www.sprott.com) formed part of the presentation, outlining the enormous acquisition of Gold by China, last year buying 10 per cent of the World's Gold supply, eclipsing the previous years buying by 5 times. He drew attention to the point that the supply of Gold has not gone up in the last 13 years, and the demand for, and aquisition of Gold, is increasing.
Where is the Gold coming from? Is it that the Central Banks are selling their Gold, with statistics on production and gold buying indicating a shortfall that cannot be explained..."
A recent article written by Eric Sprott titled "Do the central banks have any Gold left" (available on www.sprott.com) formed part of the presentation, outlining the enormous acquisition of Gold by China, last year buying 10 per cent of the World's Gold supply, eclipsing the previous years buying by 5 times. He drew attention to the point that the supply of Gold has not gone up in the last 13 years, and the demand for, and aquisition of Gold, is increasing.
Where is the Gold coming from? Is it that the Central Banks are selling their Gold, with statistics on production and gold buying indicating a shortfall that cannot be explained..."
- Read the full article and view the presentation video here:
Tuesday, October 16, 2012
I've Been a Believer in Gold & Silver for the Last 12 Years
"I've been a believer in gold and silver for the last 12 years and I guess a disbeliever in paper assets. I'm quite surprised that things such as currency debasements by central banks getting involved in supporting their bond markets and banking systems—have evolved to make the case for owning gold and silver since 2000 way stronger than anything I might have imagined.
I basically got into gold because I anticipated a physical shortage, but I didn't expect the headwinds of the level of financial irresponsibility shown at either the fiscal level of governments with all their deficits or at the involvement of the financial markets by way of QEs, LTROs, operation twists and unlimited swap lines. In my mind, all of this ultimately will further debase the currencies, which gives us an even more powerful reason to own gold and silver."
I basically got into gold because I anticipated a physical shortage, but I didn't expect the headwinds of the level of financial irresponsibility shown at either the fiscal level of governments with all their deficits or at the involvement of the financial markets by way of QEs, LTROs, operation twists and unlimited swap lines. In my mind, all of this ultimately will further debase the currencies, which gives us an even more powerful reason to own gold and silver."
- Eric Sprott in a interview with theaureport.com, source:
Saturday, October 13, 2012
It Has to be Coming from Somewheres
Over the past several years, we've collected data on physical demand for gold as it has developed over time. The consistent annual growth in demand for physical gold bullion has increasingly puzzled us with regard to supply. Global annual gold mine supply ex Russia and China (who do not export domestic production) is actually lower than it was in year 2000, and ever since the IMF announced the completion of its sale of 403 tonnes of gold in December 2010, there hasn't been any large, publicly-disclosed seller of physical gold in the market for almost two years. Given the significant increase in physical demand that we've seen over the past decade, particularly from buyers in Asia, it suffices to say that we cannot identify where all the gold is coming from to supply it… but it has to be coming from somewhere.
- Excerpt from Eric Sprott's and David Bakers recent report:
Saturday, October 6, 2012
There is Not Enough Silver! Who's Not Getting it?
Eric Sprott speaks at the Casey Research summit, "when money dies". This video is a oldy but goody. It deserves another look. The fact is there is not enough silver available compared to what is being traded on the market. Eric Sprott asks the question "who is not getting their silver?". Good question.
Tuesday, October 2, 2012
Eric Sprott & David Baker - Do Western Central Banks Have Any Gold Left?
From Eric Sprott and David Baker of Sprott Asset Management:
"Do Western Central Banks Have Any Gold Left???
Somewhere deep in the bowels of the world’s Western central banks lie vaults holding gargantuan piles of physical gold bars… or at least that’s what they all claim. The gold bars are part of their respective foreign currency reserves, which include all the usual fiat currencies like the dollar, the pound, the yen and the euro.
Collectively, the governments/central banks of the United States, United Kingdom, Japan, Switzerland, Eurozone and the International Monetary Fund (IMF) are believed to hold an impressive 23,349 tonnes of gold in their respective reserves, representing more than $1.3 trillion at today’s gold price. Beyond the suggested tonnage, however, very little is actually known about the gold that makes up this massive stockpile. Western central banks disclose next to nothing about where it’s stored, in what form, or how much of the gold reserves are utilized for other purposes. We are assured that it’s all there, of course, but little effort has ever been made by the central banks to provide any details beyond the arbitrary references in their various financial reserve reports.
Twelve years ago, few would have cared what central banks did with their gold. Gold had suffered a twenty year bear cycle and didn’t engender much excitement at $255 per ounce. It made perfect sense for Western governments to lend out (or in the case of Canada – outright sell) their gold reserves in order to generate some interest income from their holdings. And that’s exactly what many central banks did from the late 1980’s through to the late 2000’s. The times have changed however, and today it absolutely does matter what they’re doing with their reserves, and where the reserves are actually held. Why? Because the countries in question are now all grossly over-indebted and printing their respective currencies with reckless abandon. It would be reassuring to know that they still have some of the ‘barbarous relic’ kicking around, collecting dust, just in case their experiment with collusive monetary accommodation doesn’t work out as planned.
You may be interested to know that central bank gold sales were actually the crux of the original investment thesis that first got us interested in the gold space back in 2000. We were introduced to it through the work of Frank Veneroso, who published an outstanding report on the gold market in 1998 aptly titled, “The 1998 Gold Book Annual”. In it, Mr. Veneroso inferred that central bank gold sales had artificially suppressed the full extent of gold demand to the tune of approximately 1,600 tonnes per year (in an approximately 4,000 tonne market of annual supply). Of the 35,000 tonnes that the central banks were officially stated to own at the time, Mr. Veneroso estimated that they were already down to 18,000 tonnes of actual physical. Once the central banks ran out of gold to sell, he surmised, the gold market would be poised for a powerful bull market… and he turned out to be completely right – although central banks did continue to be net sellers of gold for many years to come.
As the gold bull market developed throughout the 2000’s, central banks didn’t become net buyers of physical gold until 2009, which coincided with gold’s final break-out above US$1,000 per ounce. The entirety of this buying was performed by central banks in the non-Western world, however, by countries like Russia, Turkey, Kazakhstan, Ukraine and the Philippines… and they have continued buying gold ever since. According to Thomson Reuters GFMS, a precious metals research agency, non-Western central banks purchased 457 tonnes of gold in 2011, and are expected to purchase another 493 tonnes of gold this year as they expand their reserves.1 Our estimates suggest they will likely purchase even more than that.2 The Western central banks, meanwhile, have essentially remained silent on the topic of gold, and have not publicly disclosed any sales or purchases of gold at all over the past three years. Although there is a “Central Bank Gold Agreement” currently in place that covers the gold sales of the Eurosystem central banks, Sweden and Switzerland, there has been no mention of gold sales by the very entities that are purported to own the largest stockpiles of the precious metal.3 The silence is telling.
Over the past several years, we’ve collected data on physical demand for gold as it has developed over time. The consistent annual growth in demand for physical gold bullion has increasingly puzzled us with regard to supply. Global annual gold mine supply ex Russia and China (who do not export domestic production) is actually lower than it was in year 2000, and ever since the IMF announced the completion of its sale of 403 tonnes of gold in December 2010, there hasn’t been any large, publicly-disclosed seller of physical gold in the market for almost two years.4Given the significant increase in physical demand that we’ve seen over the past decade, particularly from buyers in Asia, it suffices to say that we cannot identify where all the gold is coming from to supply it… but it has to be coming from somewhere.
To give you a sense of how much the demand for physical gold has increased over the past decade, we’ve listed a select number of physical gold buyers and calculated their net change in annual demand in tonnes from 2000 to 2012 (see Chart A)."
CHART A
"Do Western Central Banks Have Any Gold Left???
Somewhere deep in the bowels of the world’s Western central banks lie vaults holding gargantuan piles of physical gold bars… or at least that’s what they all claim. The gold bars are part of their respective foreign currency reserves, which include all the usual fiat currencies like the dollar, the pound, the yen and the euro.
Collectively, the governments/central banks of the United States, United Kingdom, Japan, Switzerland, Eurozone and the International Monetary Fund (IMF) are believed to hold an impressive 23,349 tonnes of gold in their respective reserves, representing more than $1.3 trillion at today’s gold price. Beyond the suggested tonnage, however, very little is actually known about the gold that makes up this massive stockpile. Western central banks disclose next to nothing about where it’s stored, in what form, or how much of the gold reserves are utilized for other purposes. We are assured that it’s all there, of course, but little effort has ever been made by the central banks to provide any details beyond the arbitrary references in their various financial reserve reports.
Twelve years ago, few would have cared what central banks did with their gold. Gold had suffered a twenty year bear cycle and didn’t engender much excitement at $255 per ounce. It made perfect sense for Western governments to lend out (or in the case of Canada – outright sell) their gold reserves in order to generate some interest income from their holdings. And that’s exactly what many central banks did from the late 1980’s through to the late 2000’s. The times have changed however, and today it absolutely does matter what they’re doing with their reserves, and where the reserves are actually held. Why? Because the countries in question are now all grossly over-indebted and printing their respective currencies with reckless abandon. It would be reassuring to know that they still have some of the ‘barbarous relic’ kicking around, collecting dust, just in case their experiment with collusive monetary accommodation doesn’t work out as planned.
You may be interested to know that central bank gold sales were actually the crux of the original investment thesis that first got us interested in the gold space back in 2000. We were introduced to it through the work of Frank Veneroso, who published an outstanding report on the gold market in 1998 aptly titled, “The 1998 Gold Book Annual”. In it, Mr. Veneroso inferred that central bank gold sales had artificially suppressed the full extent of gold demand to the tune of approximately 1,600 tonnes per year (in an approximately 4,000 tonne market of annual supply). Of the 35,000 tonnes that the central banks were officially stated to own at the time, Mr. Veneroso estimated that they were already down to 18,000 tonnes of actual physical. Once the central banks ran out of gold to sell, he surmised, the gold market would be poised for a powerful bull market… and he turned out to be completely right – although central banks did continue to be net sellers of gold for many years to come.
As the gold bull market developed throughout the 2000’s, central banks didn’t become net buyers of physical gold until 2009, which coincided with gold’s final break-out above US$1,000 per ounce. The entirety of this buying was performed by central banks in the non-Western world, however, by countries like Russia, Turkey, Kazakhstan, Ukraine and the Philippines… and they have continued buying gold ever since. According to Thomson Reuters GFMS, a precious metals research agency, non-Western central banks purchased 457 tonnes of gold in 2011, and are expected to purchase another 493 tonnes of gold this year as they expand their reserves.1 Our estimates suggest they will likely purchase even more than that.2 The Western central banks, meanwhile, have essentially remained silent on the topic of gold, and have not publicly disclosed any sales or purchases of gold at all over the past three years. Although there is a “Central Bank Gold Agreement” currently in place that covers the gold sales of the Eurosystem central banks, Sweden and Switzerland, there has been no mention of gold sales by the very entities that are purported to own the largest stockpiles of the precious metal.3 The silence is telling.
Over the past several years, we’ve collected data on physical demand for gold as it has developed over time. The consistent annual growth in demand for physical gold bullion has increasingly puzzled us with regard to supply. Global annual gold mine supply ex Russia and China (who do not export domestic production) is actually lower than it was in year 2000, and ever since the IMF announced the completion of its sale of 403 tonnes of gold in December 2010, there hasn’t been any large, publicly-disclosed seller of physical gold in the market for almost two years.4Given the significant increase in physical demand that we’ve seen over the past decade, particularly from buyers in Asia, it suffices to say that we cannot identify where all the gold is coming from to supply it… but it has to be coming from somewhere.
To give you a sense of how much the demand for physical gold has increased over the past decade, we’ve listed a select number of physical gold buyers and calculated their net change in annual demand in tonnes from 2000 to 2012 (see Chart A)."
CHART A
Numbers quoted in metric tonnes.
† Source: CBGA1, CBGA2, CBGA3, International Monetary Fund Statistics, Sprott Estimates.
†† Source: Royal Canadian Mint and United States Mint.
††† Includes closed-end funds such as Sprott Physical Gold Trust and Central Fund of Canada.
^ Source: World Gold Council, Sprott Estimates.
^^ Source: World Gold Council, Sprott Estimates.
^^^ Refers to annualized increase over the past eight years.
"As can be seen, the mere combination of only five separate sources of demand results in a 2,268 tonne net change in physical demand for gold over the past twelve years – meaning that there is roughly 2,268 tonnes of new annual demand today that didn’t exist 12 years ago. According to the CPM Group, one of the main purveyors of gold statistics, the total annual gold supply is estimated to be roughly 3,700 tonnes of gold this year. Of that, the World Gold Council estimates that only 2,687 tonnes are expected to come from actual mine production, while the rest is attributed to recycled scrap gold, mainly from old jewelry.5 (See footnote 5). The reporting agencies have a tendency to insist that total physical demand perfectly matches physical supply every year, and use the “Net Private Investment” as a plug to shore up the difference between the demand they attribute to industry, jewelry and ‘official transactions’ by central banks versus their annual supply estimate (which is relatively verifiable). Their “Net Private Investment” figures are implied, however, and do not measure the actual investment demand purchases that take place every year. If more accurate data was ever incorporated into their market summary for demand, it would reveal a huge discrepancy, with the demand side vastly exceeding their estimation of annual supply. In fact, we know it would exceed it based purely on China’s Hong Kong gold imports, which are now up to 458 tonnes year-to-date as of July, representing a 367% increase over its purchases during the same period last year. If the imports continue at their current rate, China will reach 785 tonnes of gold imports by year-end. That’s 785 tonnes in a market that’s only expected to produce roughly 2,700 tonnes of mine supply, and that’s just one buyer.
Then there are all the private buyers whose purchases go unreported and unacknowledged, like that of Greenlight Capital, the hedge fund managed by David Einhorn, that is reported to have purchased $500 million worth of physical gold starting in 2009. Or the $1 billion of physical gold purchased by the University of Texas Investment Management Co. in April 2011… or the myriad of other private investors (like Saudi Sheiks, Russian billionaires, this writer, probably many of our readers, etc.) who have purchased physical gold for their accounts over the past decade. None of these private purchases are ever considered in the research agencies’ summaries for investment demand, and yet these are real purchases of physical gold, not ETF’s or gold ‘certificates’. They require real, physical gold bars to be delivered to the buyer. So once we acknowledge how big the discrepancy is between the actual true level of physical gold demand versus the annual “supply”, the obvious questions present themselves: who are the sellers delivering the gold to match the enormous increase in physical demand? What entities are releasing physical gold onto the market without reporting it? Where is all the gold coming from?
There is only one possible candidate: the Western central banks. It may very well be that a large portion of physical gold currently flowing to new buyers is actually coming from the Western central banks themselves. They are the only holders of physical gold who are capable of supplying gold in a quantity and manner that cannot be readily tracked. They are also the very entities whose actions have driven investors back into gold in the first place. Gold is, after all, a hedge against their collective irresponsibility – and they have showcased their capacity in that regard quite enthusiastically over the past decade, especially since 2008.
If the Western central banks are indeed leasing out their physical reserves, they would not actually have to disclose the specific amounts of gold that leave their respective vaults. According to a document on the European Central Bank’s (ECB) website regarding the statistical treatment of the Eurosystem’s International Reserves, current reporting guidelines do not require central banks to differentiate between gold owned outright versus gold lent out or swapped with another party. The document states that, “reversible transactions in gold do not have any effect on the level of monetary gold regardless of the type of transaction (i.e. gold swaps, repos, deposits or loans), in line with the recommendations contained in the IMF guidelines.”6 (Emphasis theirs). Under current reporting guidelines, therefore, central banks are permitted to continue carrying the entry of physical gold on their balance sheet even if they’ve swapped it or lent it out entirely. You can see this in the way Western central banks refer to their gold reserves. The UK Government, for example, refers to its gold allocation as, “Gold (incl. gold swapped or on loan)”. That’s the verbatim phrase they use in their official statement. Same goes for the US Treasury and the ECB, which report their gold holdings as “Gold (including gold deposits and, if appropriate, gold swapped)” and “Gold (including gold deposits and gold swapped)”, respectively (see Chart B). Unfortunately, that’s as far as their description goes, as each institution does not break down what percentage of their stated gold reserves are held in physical, versus what percentage has been loaned out or swapped for something else. The fact that they do not differentiate between the two is astounding, (Ed. As is the “including gold deposits” verbiage that they use – what else is “gold” supposed to refer to?) but at the same time not at all surprising. It would not lend much credence to central bank credibility if they admitted they were leasing their gold reserves to ‘bullion bank’ intermediaries who were then turning around and selling their gold to China, for example. But the numbers strongly suggest that that is exactly what has happened. The central banks’ gold is likely gone, and the bullion banks that sold it have no realistic chance of getting it back."
CHART B
†† Source: Royal Canadian Mint and United States Mint.
††† Includes closed-end funds such as Sprott Physical Gold Trust and Central Fund of Canada.
^ Source: World Gold Council, Sprott Estimates.
^^ Source: World Gold Council, Sprott Estimates.
^^^ Refers to annualized increase over the past eight years.
"As can be seen, the mere combination of only five separate sources of demand results in a 2,268 tonne net change in physical demand for gold over the past twelve years – meaning that there is roughly 2,268 tonnes of new annual demand today that didn’t exist 12 years ago. According to the CPM Group, one of the main purveyors of gold statistics, the total annual gold supply is estimated to be roughly 3,700 tonnes of gold this year. Of that, the World Gold Council estimates that only 2,687 tonnes are expected to come from actual mine production, while the rest is attributed to recycled scrap gold, mainly from old jewelry.5 (See footnote 5). The reporting agencies have a tendency to insist that total physical demand perfectly matches physical supply every year, and use the “Net Private Investment” as a plug to shore up the difference between the demand they attribute to industry, jewelry and ‘official transactions’ by central banks versus their annual supply estimate (which is relatively verifiable). Their “Net Private Investment” figures are implied, however, and do not measure the actual investment demand purchases that take place every year. If more accurate data was ever incorporated into their market summary for demand, it would reveal a huge discrepancy, with the demand side vastly exceeding their estimation of annual supply. In fact, we know it would exceed it based purely on China’s Hong Kong gold imports, which are now up to 458 tonnes year-to-date as of July, representing a 367% increase over its purchases during the same period last year. If the imports continue at their current rate, China will reach 785 tonnes of gold imports by year-end. That’s 785 tonnes in a market that’s only expected to produce roughly 2,700 tonnes of mine supply, and that’s just one buyer.
Then there are all the private buyers whose purchases go unreported and unacknowledged, like that of Greenlight Capital, the hedge fund managed by David Einhorn, that is reported to have purchased $500 million worth of physical gold starting in 2009. Or the $1 billion of physical gold purchased by the University of Texas Investment Management Co. in April 2011… or the myriad of other private investors (like Saudi Sheiks, Russian billionaires, this writer, probably many of our readers, etc.) who have purchased physical gold for their accounts over the past decade. None of these private purchases are ever considered in the research agencies’ summaries for investment demand, and yet these are real purchases of physical gold, not ETF’s or gold ‘certificates’. They require real, physical gold bars to be delivered to the buyer. So once we acknowledge how big the discrepancy is between the actual true level of physical gold demand versus the annual “supply”, the obvious questions present themselves: who are the sellers delivering the gold to match the enormous increase in physical demand? What entities are releasing physical gold onto the market without reporting it? Where is all the gold coming from?
There is only one possible candidate: the Western central banks. It may very well be that a large portion of physical gold currently flowing to new buyers is actually coming from the Western central banks themselves. They are the only holders of physical gold who are capable of supplying gold in a quantity and manner that cannot be readily tracked. They are also the very entities whose actions have driven investors back into gold in the first place. Gold is, after all, a hedge against their collective irresponsibility – and they have showcased their capacity in that regard quite enthusiastically over the past decade, especially since 2008.
If the Western central banks are indeed leasing out their physical reserves, they would not actually have to disclose the specific amounts of gold that leave their respective vaults. According to a document on the European Central Bank’s (ECB) website regarding the statistical treatment of the Eurosystem’s International Reserves, current reporting guidelines do not require central banks to differentiate between gold owned outright versus gold lent out or swapped with another party. The document states that, “reversible transactions in gold do not have any effect on the level of monetary gold regardless of the type of transaction (i.e. gold swaps, repos, deposits or loans), in line with the recommendations contained in the IMF guidelines.”6 (Emphasis theirs). Under current reporting guidelines, therefore, central banks are permitted to continue carrying the entry of physical gold on their balance sheet even if they’ve swapped it or lent it out entirely. You can see this in the way Western central banks refer to their gold reserves. The UK Government, for example, refers to its gold allocation as, “Gold (incl. gold swapped or on loan)”. That’s the verbatim phrase they use in their official statement. Same goes for the US Treasury and the ECB, which report their gold holdings as “Gold (including gold deposits and, if appropriate, gold swapped)” and “Gold (including gold deposits and gold swapped)”, respectively (see Chart B). Unfortunately, that’s as far as their description goes, as each institution does not break down what percentage of their stated gold reserves are held in physical, versus what percentage has been loaned out or swapped for something else. The fact that they do not differentiate between the two is astounding, (Ed. As is the “including gold deposits” verbiage that they use – what else is “gold” supposed to refer to?) but at the same time not at all surprising. It would not lend much credence to central bank credibility if they admitted they were leasing their gold reserves to ‘bullion bank’ intermediaries who were then turning around and selling their gold to China, for example. But the numbers strongly suggest that that is exactly what has happened. The central banks’ gold is likely gone, and the bullion banks that sold it have no realistic chance of getting it back."
CHART B
Sources:
1) http://www.bankofengland.co.uk/statistics/Documents/reserves/2012/Aug/tempoutput.pdf
2) http://www.treasury.gov/resource-center/data-chart-center/IR-Position/Pages/08312012.aspx
3) http://www.ecb.int/stats/external/reserves/html/assets_8.812.E.en.html
4) http://www.boj.or.jp/en/about/account/zai1205a.pdf
5) http://www.imf.org/external/np/exr/facts/gold.htm
6) http://www.snb.ch/en/mmr/reference/annrep_2011_komplett/source
Notes:
ECB Data as of July 2012. Bank of Japan data as of March 31, 2012.
* European Central Bank reserves is composed of reserves held by the ECB, Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, The Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.
** Bank of Japan only lists its gold reserves in Yen at book value.
"Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today. If Frank Veneroso’s conclusions were even close to accurate back in 1998 (and we believe they were), when coupled with the 2,300 tonne net change in annual demand we can easily identify above, it can only lead to the conclusion that a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counterparty leased it from them in years past. At this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely. We can also only wonder how much gold within the central bank system has been ‘rehypothecated’ in the process, since the central banks in question seem so reluctant to divulge any meaningful details on their reserves in a way that would shed light on the various “swaps” and “loans” they imply to be participating in. We might also suggest that if a proper audit of Western central bank gold reserves was ever launched, as per Ron Paul’s recent proposal to audit the US Federal Reserve, the proverbial cat would be let out of the bag – with explosive implications for the gold price.
Notwithstanding the recent conversions of PIMCO’s Bill Gross, Bridegwater’s Ray Dalio and Ned Davis Research to gold, we realize that many mainstream institutional investors still continue to struggle with the topic. We also realize that some readers may scoff at any analysis of the gold market that hints at “conspiracy”. We’re not talking about conspiracy here however, we’re talking about stupidity. After all, Western central banks are probably under the impression that the gold they’ve swapped and/or lent out is still legally theirs, which technically it may be. But if what we are proposing turns out to be true, and those reserves are not physically theirs; not physically in their possession… then all bets are off regarding the future of our monetary system. As a general rule of common sense, when one embarks on an unlimited quantitative easing program targeted at the employment rate (see QE3), one had better make sure to have something in the vault as backup in case the ‘unlimited’ part actually ends up really meaning unlimited. We hope that it does not, for the sake of our monetary system, but given our analysis of the physical gold market, we’ll stick with our gold bars and take comfort as they collect more dust in our vaults, untouched."
1 http://www.bloomberg.com/news/2012-09-04/central-bank-gold-buying-seen-reaching-493-tons-in-2012-by-gfms.html
2 See notes in Chart A.
3 http://www.gold.org/government_affairs/reserve_asset_management/central_bank_gold_agreements/
4 http://www.imf.org/external/np/exr/faq/goldfaqs.htm
5 Mine supply estimate supplied by World Gold Council; YTD gold mine production data suggests that total 2012 gold mine supply will come in lower around 2,300 tonnes, ex Russia and China production. In addition, Frank Veneroso has recently published a new report that warns that the supply of recycled scrap gold could drop significantly going forward due to the depletion ofthe inventories of industrial scrap and long held jewelry over the past decade.
6 http://www.ecb.int/pub/pdf/other/statintreservesen.pdf
1) http://www.bankofengland.co.uk/statistics/Documents/reserves/2012/Aug/tempoutput.pdf
2) http://www.treasury.gov/resource-center/data-chart-center/IR-Position/Pages/08312012.aspx
3) http://www.ecb.int/stats/external/reserves/html/assets_8.812.E.en.html
4) http://www.boj.or.jp/en/about/account/zai1205a.pdf
5) http://www.imf.org/external/np/exr/facts/gold.htm
6) http://www.snb.ch/en/mmr/reference/annrep_2011_komplett/source
Notes:
ECB Data as of July 2012. Bank of Japan data as of March 31, 2012.
* European Central Bank reserves is composed of reserves held by the ECB, Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, The Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.
** Bank of Japan only lists its gold reserves in Yen at book value.
"Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today. If Frank Veneroso’s conclusions were even close to accurate back in 1998 (and we believe they were), when coupled with the 2,300 tonne net change in annual demand we can easily identify above, it can only lead to the conclusion that a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counterparty leased it from them in years past. At this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely. We can also only wonder how much gold within the central bank system has been ‘rehypothecated’ in the process, since the central banks in question seem so reluctant to divulge any meaningful details on their reserves in a way that would shed light on the various “swaps” and “loans” they imply to be participating in. We might also suggest that if a proper audit of Western central bank gold reserves was ever launched, as per Ron Paul’s recent proposal to audit the US Federal Reserve, the proverbial cat would be let out of the bag – with explosive implications for the gold price.
Notwithstanding the recent conversions of PIMCO’s Bill Gross, Bridegwater’s Ray Dalio and Ned Davis Research to gold, we realize that many mainstream institutional investors still continue to struggle with the topic. We also realize that some readers may scoff at any analysis of the gold market that hints at “conspiracy”. We’re not talking about conspiracy here however, we’re talking about stupidity. After all, Western central banks are probably under the impression that the gold they’ve swapped and/or lent out is still legally theirs, which technically it may be. But if what we are proposing turns out to be true, and those reserves are not physically theirs; not physically in their possession… then all bets are off regarding the future of our monetary system. As a general rule of common sense, when one embarks on an unlimited quantitative easing program targeted at the employment rate (see QE3), one had better make sure to have something in the vault as backup in case the ‘unlimited’ part actually ends up really meaning unlimited. We hope that it does not, for the sake of our monetary system, but given our analysis of the physical gold market, we’ll stick with our gold bars and take comfort as they collect more dust in our vaults, untouched."
1 http://www.bloomberg.com/news/2012-09-04/central-bank-gold-buying-seen-reaching-493-tons-in-2012-by-gfms.html
2 See notes in Chart A.
3 http://www.gold.org/government_affairs/reserve_asset_management/central_bank_gold_agreements/
4 http://www.imf.org/external/np/exr/faq/goldfaqs.htm
5 Mine supply estimate supplied by World Gold Council; YTD gold mine production data suggests that total 2012 gold mine supply will come in lower around 2,300 tonnes, ex Russia and China production. In addition, Frank Veneroso has recently published a new report that warns that the supply of recycled scrap gold could drop significantly going forward due to the depletion ofthe inventories of industrial scrap and long held jewelry over the past decade.
6 http://www.ecb.int/pub/pdf/other/statintreservesen.pdf
- Source:
Friday, September 28, 2012
I Never Would of Imagined...
Eric Sprott recently appeared on CNBC's squawk box. On which he discusses such topics as his history in the precious metals markets, QE3 and the instability of the current banking system.
- Source:
Monday, September 24, 2012
How High are Oil Prices Going?
"Tell me how many greenbacks the Federal Reserve is going to print and I'll tell you where oil prices are going"
Saturday, September 22, 2012
Central Banks are Subverting the Gold Price
"I suspect the G6 central banks have a hand in subverting the gold price because as the canary in the coal mine, high gold prices might tip everyone off to the severity of the ongoing financial crisis. I don't think anyone can doubt that we're in the middle of a financial crisis, primarily in the banking system, when month after month one program after another is rolled out to save somebody, whether it's Long-Term Refinancing Operations (LTROs), quantitative easings (QEs), bank bailouts in Spain or rollovers of debt in Greece."
- Source: The Gold Report, read the full article here:
Tuesday, September 18, 2012
Eric Sprott - The Gold and Silver Outlook
- Source:
Friday, September 14, 2012
The Financial System is in Total Chaos
“In this financial, chaotic market that we have and I’m referring to the whole financial system, which I think is in total chaos. More and more, I believe…the central planners, has been keeping a lid on gold and silver and I can so easily come up with the logic of how much physical demand for physical gold there is way beyond the supply and the only conclusion I can come up with is that the central banks are continuing to supply that gold by leasing that gold.”
- Source Sprott Money:
http://www.sprottmoney.com/news/eric-sprott-interview-with-cfras-john-budden
- Source Sprott Money:
http://www.sprottmoney.com/news/eric-sprott-interview-with-cfras-john-budden
Monday, September 10, 2012
Gold and Silver are the Only Things you Should Own
"We have more regulations than you can imagine, but most of them are either not enforced or the problems escape the sight of the regulators, whether it's MF Global or Bernie Madoff. These things went on for years and years, when it would seem that the regulators could identify it. Even when they're tipped off, they can't seem to reconcile it.
Based on experience, a blanket case that more regulation will solve a problem is naive. People have to take matters into their own hands, whether they think they're being ripped off in the stock market because of high-frequency trading or that they're being hurt by rule changes on the commodity exchange. They have to assess their own situations and ask, "What kind of risk am I prepared to take?" The system has failed a lot of people.
That's why I pointblank say gold and silver are the only things you should own. They're the safest things I can possibly recommend. If you own gold and silver and you're 100% certain that it's where you think it is, you should be okay. That's the way I approach it."
Based on experience, a blanket case that more regulation will solve a problem is naive. People have to take matters into their own hands, whether they think they're being ripped off in the stock market because of high-frequency trading or that they're being hurt by rule changes on the commodity exchange. They have to assess their own situations and ask, "What kind of risk am I prepared to take?" The system has failed a lot of people.
That's why I pointblank say gold and silver are the only things you should own. They're the safest things I can possibly recommend. If you own gold and silver and you're 100% certain that it's where you think it is, you should be okay. That's the way I approach it."
- Eric Sprott in a recent interview with Seeking Alpha, read the full interview here:
Thursday, September 6, 2012
The Economy is Taking a Cliff Dive
“The economy is already taking a cliff dive and that is before we hit the cliff. . . . It’s hard to imagine anyone being optimistic going forward here.”
- Eric Sprott in a recent USA Watchdog interview, view the video and article here:
Sunday, September 2, 2012
Chaos and Collapse is in Front of Us
Eric Sprott was recently interviewed once again by King World News. In this audio interview Eric says that he believe that Chaos and a utter collapse of the financial system is in front of us. He discusses key topics such as the Gold and Silver markets. This is must listen to interview.
Listen to the full interview at King World News here:
http://www.kingworldnews.com/kingworldnews/King_World_News.html
Listen to the full interview at King World News here:
http://www.kingworldnews.com/kingworldnews/King_World_News.html
Monday, August 27, 2012
The Financial System Has Gone Bankrupt
“I always postulated that the financial system would go bankrupt, and it has, save for one thing, it got bailed out. But it was bankrupt. So, yes, they’ve deferred it and pushed it out. This has all played out according to script, although people interfered with the script."
- Eric Sprott via a recent King World News interview, read the full interview here:
Friday, August 24, 2012
Who Knows How High Gold Will Go
"I argue that there is 6,500 tons of demand and 4,000 tons of supply (each year), and the extra 2,500 tons is coming out of central banks that are leasing it. Imagine if they just stopped leasing it. Who knows where the price would go? You would get such chaos (disorderly upside trading in gold).
I can sense it has a lot of upside here. Total chaos can happen when we all realize that on a sovereign basis, the ‘Emperor has no clothes.’ Who knows how high it’s going to go, but we’re not talking about just hitting a new high above $1,920. We’re looking at much bigger numbers."
I can sense it has a lot of upside here. Total chaos can happen when we all realize that on a sovereign basis, the ‘Emperor has no clothes.’ Who knows how high it’s going to go, but we’re not talking about just hitting a new high above $1,920. We’re looking at much bigger numbers."
- Eric Sprott via a recent King World News interview, read the full interview here:
Wednesday, August 22, 2012
Economies Have Run into a Bit of a Roadblock
"I have always believed that one of the world's fundamental flaws is the leverage in the bank system. As you might be aware, the typical leverage of a European bank is something like 30 to 1. This means you have roughly 3 cents of capital supporting $1 dollar of assets, and as these economies have run into a bit of a roadblock (the best examples are Greece and Spain), you find out that values were too high."
- Eric Sprott via a interview with Seeking Alpha, read the full interview here:
Saturday, August 18, 2012
The World Depression is Coming
"Eric Sprott of Sprott Asset Management thinks politicians are turning a blind eye to the coming World Depression and then talks about gold, silver and other commodities.
Sprott also sees natural gas prices moving higher as the clean energy makes its way into cars."
- Source:
Wednesday, August 15, 2012
We Have Reached the Limit of Indebtedness
"On both sides of the Atlantic, the largest contributors to the current crisis are excessive debt and spending. We are now at a point where additional government stimulus measures will have negligible, if not detrimental effects on the economy and long-term growth. Debt has to be reduced, not increased by more deficits. Central planners have demonstrated that they don’t have the discipline to implement the Keynesian model of surplus in good times in order to finance deficits in bad times. We have now reached the limit of indebtedness and need to muddle through a painful but necessary deleveraging."
- Read the full article by Eric Sprott & Etienne Bordeleau at Sprott asset management, here:
http://www.sprott.com/markets-at-a-glance/the-solution%E2%80%A6is-the-problem,-part-ii/
http://www.sprott.com/markets-at-a-glance/the-solution%E2%80%A6is-the-problem,-part-ii/
Saturday, August 11, 2012
Part 2: The Solution... Is the Problem
"When we wrote Part I of this paper in June 2009, the total U.S. public debt was just north of $10 trillion. Since then, that figure has increased by more than 50% to almost $16 trillion, thanks largely to unprecedented levels of government intervention.
Once the exclusive domain of central bankers and policy makers, acronyms such as QE, LTRO, SMP, TWIST, TARP, TALF have found their way into the mainstream. With the aim of providing stimulus to the economy, central planners of all stripes have both increased spending and reduced taxes in most rich countries. But do these fiscal and monetary measures really increase economic activity or do they have other perverse effects?
In today’s overleveraged world, greater deficits and government spending, financed by an expansion of public debt and the monetary base (“the printing press”), are not the answer to our economic woes. In fact, these policies have been proven to have a negative impact on growth.
While it hasn’t received much attention in recent years, a wide body of economic theory suggests that government policies and their size relative to the total economy can have a significant detrimental impact on economic growth. A recent paper from the Stockholm Research Institute of Industrial Economics compiles evidence from numerous empirical studies and finds that, for rich countries, there is overwhelming evidence of a negative relationship between a large government (either through taxes and/or spending as a share of GDP) and economic growth. All else being equal, countries where government plays a large role in the economy tend to experience lower GDP growth.
Of course, correlation does not imply causation. While the literature is not definitive on causation, it still provides strong evidence that more taxes and government spending as a share of GDP (except for productive investments such as education) is associated with lower growth.
One exception to these findings is the experience of Scandinavian countries. They have both high taxes and high government spending as a share of GDP but have experienced relatively rapid growth over the past 20 years. However, a significant share of their spending goes to education, which has been found to foster growth. They also counterbalance the large role of the state with very liberal, pro-market reforms and low levels of public debt."
Once the exclusive domain of central bankers and policy makers, acronyms such as QE, LTRO, SMP, TWIST, TARP, TALF have found their way into the mainstream. With the aim of providing stimulus to the economy, central planners of all stripes have both increased spending and reduced taxes in most rich countries. But do these fiscal and monetary measures really increase economic activity or do they have other perverse effects?
In today’s overleveraged world, greater deficits and government spending, financed by an expansion of public debt and the monetary base (“the printing press”), are not the answer to our economic woes. In fact, these policies have been proven to have a negative impact on growth.
While it hasn’t received much attention in recent years, a wide body of economic theory suggests that government policies and their size relative to the total economy can have a significant detrimental impact on economic growth. A recent paper from the Stockholm Research Institute of Industrial Economics compiles evidence from numerous empirical studies and finds that, for rich countries, there is overwhelming evidence of a negative relationship between a large government (either through taxes and/or spending as a share of GDP) and economic growth. All else being equal, countries where government plays a large role in the economy tend to experience lower GDP growth.
Of course, correlation does not imply causation. While the literature is not definitive on causation, it still provides strong evidence that more taxes and government spending as a share of GDP (except for productive investments such as education) is associated with lower growth.
One exception to these findings is the experience of Scandinavian countries. They have both high taxes and high government spending as a share of GDP but have experienced relatively rapid growth over the past 20 years. However, a significant share of their spending goes to education, which has been found to foster growth. They also counterbalance the large role of the state with very liberal, pro-market reforms and low levels of public debt."
- Read the full article by Eric Sprott & Etienne Bordeleau at Sprott asset management, here:
Tuesday, August 7, 2012
Silver Would be $150 if Not Suppressed
"Eric Sprott has $10 billion under management, and it's no secret Mr. Sprott is a long term bull on physical gold and silver. He says, "I can make a compelling case the price has been suppressed." If it wasn't, Sprott says, "Gold would be $2,500, and if the ratio was 15 to 1, the price of silver would be $150 an ounce." Mr. Sprott also says, "The economy is already taking a cliff dive and that is before we hit the cliff. . . . It's hard to imagine anyone being optimistic going forward here." If there is war in the Middle East, Sprott says, "Oil would go crazy, gold would go crazy, anything physically real would be in demand." Greg Hunter goes One-on-One with Eric Sprott of Sprott Asset Management."
- Source:
Friday, August 3, 2012
Stimulus Policies Won't Help and the US is in a Recession
“The world is hoping for some monetary stimulus from the G6 countries. I would not be surprised at all that some Sunday night we’ll get some announcement that all governments are going to buy more of their government bonds, maybe some organized action by the G6, which I think will just send gold moving significantly higher. I’m pretty convinced it will be at new highs before the end of the year. It’s not even that relevant to me what it is exactly at the end of the year”
- Source:
http://www.moneynews.com/Economy/Sprott-Recession-economy-gold/2012/07/30/id/446971
Thursday, August 2, 2012
Hecla Mining Makes Hostile Bid for U.S Silver
"The head of Sprott Asset Management, Eric Sprott, was keeping his cards close to his chest after Hecla Mining made a hostile C$111-million cash offer to buy U.S. Silver that would derail a Sprott-backed plan to merge U.S. Silver with RX Gold & Silver.
Sprott is a key shareholder of both U.S. Silver and RX Gold & Silver, holding 14 percent and 8 percent of each company respectively, and now with the Hecla bid, as reported by Dorothy Kosich early on Thursday, it faces an interesting dilemma. Does it support a premium bid for U.S. Silver, but in so doing give up on the RX Gold & Silver merger, a combination in which it would be a top shareholder, or does it stick with the merger, arguing as it did last month that the combo would unlock shareholder value?
So far there is no official indication as to what Sprott will decide. A spokesperson for Mr. Sprott said on Thursday he had no comment on the Hecla bid."
Sprott is a key shareholder of both U.S. Silver and RX Gold & Silver, holding 14 percent and 8 percent of each company respectively, and now with the Hecla bid, as reported by Dorothy Kosich early on Thursday, it faces an interesting dilemma. Does it support a premium bid for U.S. Silver, but in so doing give up on the RX Gold & Silver merger, a combination in which it would be a top shareholder, or does it stick with the merger, arguing as it did last month that the combo would unlock shareholder value?
So far there is no official indication as to what Sprott will decide. A spokesperson for Mr. Sprott said on Thursday he had no comment on the Hecla bid."
- Read the full article here:
Monday, July 30, 2012
Sprotts Comments on the Latest "Sprott Silver Trust" Offering
“We thought the timing was good in the sense that the silver price has been in the doldrums and there would be some underlying interest in the metal. We were happy the announced offering reached the target of $200 million because the issuing market is not very robust these days.
So we were quite happy with the results. And initially it will allow us to buy seven million odd ounces of silver, which we haven’t bought yet, but it will certainly help the silver market.”
So we were quite happy with the results. And initially it will allow us to buy seven million odd ounces of silver, which we haven’t bought yet, but it will certainly help the silver market.”
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