Monday, December 30, 2013

Are you selling some stocks in order to enter ‘cheaper’ or more leveraged stocks?

Well, right now for instance, we are buying producers. If the price goes to 2,000 dollars, they will see a lot of cash flow. And those will probably be the first stocks to go up. The exploration stocks will go up as a function of those guys now having more money to spend.

I am looking for producers today rather than exploration, even if certain explorers may have some good deposits. We still have not opened up our capital to those kinds of capital raises yet. When we choose to finance them, it will come as a function of investors getting more convinced that we are in a sustained rally.

- Source, Eric Sprott via the Sprott Group:

Saturday, December 28, 2013

How often do you review your portfolio allocation to stocks and the metals?

This is a constant process. We are doing it all the time. If you move 20 percent of your portfolio into stocks, like we just did, I think that is a pretty significant re-allocation.

My view on precious metals and equities have been the same for a long time, because when I study the data, it seems so obvious to me that we are going to have a shortage of physical metal.

They are just printing money with reckless abandon, so this is a time when people should be buying assets that are going to hold their value, such as gold.

- Source, Eric Sprott via the Sprott Group:

Thursday, December 26, 2013

Everyone Has to Have Some Gold Out of the System

People in power want to stay in power. And if it means abrogating your debt obligations, pension fund obligations, Medicare obligations, and/or seizing assets, in a sense, in the previous part of this conversation, they are seizing assets already. They are not letting the savers make money so that the banks can make money. It’s already a seizure of assets that’s taking place.

But in its extreme, when they have to somehow make day-to-day decisions, yes, do I worry that 401k contributions could be confiscated. Yes, I worry about that. I worry that they could attempt to confiscate gold. People who are in power that are in desperate situations do desperate things. That’s why everyone has to have some gold and silver out of the system.

- Source, Eric Sprott via King World News:

Monday, December 23, 2013

This is Not Going to be Pretty

As you would undoubtedly agree, we have inflation which is understated. If you imagine what’s going to happen post-January 1st in the US, when one of your biggest costs in a US household already is healthcare and now we’re talking about premiums going up 50% to 100%, it’s just shocking the relevance of it to the 99%.

This is what’s going on: Everything that’s been done since 2008 is to save the banking system -- to let the banks make money because they had lost a lot of capital. Of course the opposite is whatever they make, some saver doesn’t make. So, yes, the transfer just keeps moving on from the people to the banks, people to the banks. Ultimately, the consumer can’t spend what he (or she) doesn’t have, so we are going to see that manifested. I can’t even imagine in the US when people have to face this reality of their healthcare bills.
Of course we are all ignoring it in a way. We talk about how bad the website is. Forget the website, what about the cost of insurance? It seems to me that the cost of insurance is escalating dramatically for everyone, and it’s a big cost for everyone already. So it’s not going to be pretty.

- Source, Eric Sprott via a recent King World News interview:

Saturday, December 21, 2013

People are Losing out to Inflation

"There was some work done in the UK saying that by having zero interest rates you help the banking system by 120 billion pounds a year. But of course the opposite side of that is the savers don’t make 120 billion pounds. And with this financial repression ongoing, people can’t better themselves. They are losing out to inflation."

- Eric Sprott via a recent King World News interview:

Thursday, December 19, 2013

Western Central Banks Leasing Gold into the Market to Keep it Down

The Chinese announce their monthly gold production, so we know how much gold is produced; we just don’t get export and import data. The only data we get is that Hong Kong exports well over 1,000 tons into China. That makes it highly unlikely that China would be exporting at the same time it is importing. It’s hard to imagine that somebody isn’t supplying that market. In my mind, that someone is central banks.
I think Western central banks lease gold into the market to keep the price down. We can’t tell what they lease, because on their own balance sheets they have one line called gold and gold receivables. Of course, gold receivables is the least they put out, so they can pretend they own it. But, in fact, the gold is gone. We get no transparency whatsoever as to what part of that line is real metal and what part of it is leased gold.

Central banks think they should be totally nontransparent. As you may be aware, there has been no audit of the gold held by the U.S. Department of the Treasury since 1954. There are no physical data supplied by any central banks as to what their current positions are.

Earlier this year, Germany requested the 330 tons that it had leased to the U.S. Department of the Treasury be redelivered to Germany. At first the U.S. declined to deliver, and then it agreed to deliver the gold over seven years. There is no logistical problem with delivering gold. So why is it that when a country says it wants its gold back, which would represent approximately 4% of all the gold theoretically the U.S. has, that it takes seven years to deliver it? It begs the question.

- Eric Sprott via:

Tuesday, December 17, 2013

World Gold Council Data on Gold is Wrong

I have always had a dispute with the data that Thomson Reuters GFMS GoldSurvey puts out, which the World Gold Council uses as the basis for its analysis of gold. Since I’ve been involved in the gold market, the supply always magically equals the demand. Of course, we know that’s almost impossible.

The report has two what I call fudge numbers. One is recycling, which is a very big item. The report suggests it could be upward of something like 1,600 tons some years. I don’t know how it would possibly come up with that number. I find it very difficult to get numbers on recycling in any country, let alone all countries.

Two, the report always uses what it calls a net investment demand or supply. It’s the plug number to make supply equal demand. Many times I think that the investment number is understated.

Furthermore, as I wrote in “Do the Central Banks Have Any Gold Left?,” we have seen a net increase in gold demand over the decade of at least 2,000 tons per year (2,000 tpa). China’s demand alone is going up 100%; jewelry demand is up 50%. Mine supply has essentially been flat at 2,700 tpa, or 2,100 tpa for Western consumption because China and Russia don’t export the gold they produce. As we move into 2013, we start to see significantly higher imports of gold into the Asian countries. That makes the shortages even more extreme. We could see demand of 5,100 tpa. That would result in a 3,000 tpa shortfall, not a balance. How can all these people be buying all this gold per year when the supply hasn’t gone up? That is why I question the GFMS data. I think it is flawed.

Sunday, December 15, 2013

Is Gold Suitable for Any Investor?

If this seems high, remember that I am a risk-taker and a very successful investor. I am happy staying the course on this. Whether this allocation is suitable for any specific investor depends entirely on that investor’s financial situation and risk tolerance profile. What I find really interesting is that right now, gold – the metal and the stocks – represent half of one percent of all the assets in the world.

So you have some investors like me with a large allocation to gold. The average person, meanwhile, never owned any gold, even while it was going from $250 to $1,900. Gold is still a very under-owned asset, in my opinion.

- Source, Eric Sprott via the Sprott Group:

Friday, December 13, 2013

How much of your portfolio is devoted to precious metals stocks and bullion?

Between shares in mining companies and physical bullion, I have at least 80% of my total portfolio invested in gold and silver. This is similar to the amount in the public accounts I run such as the mutual funds. I have been happy to remain there. It was a wonderful trade since 2000, and, of course, an awful trade since the 2011 peak.

Breaking it down further, the amount of bullion that I hold has been going down – to probably 15 percent of my total portfolio right now. It was as high as 35 or 40 percent.

This year, I am selling bullion to buy stocks because the leverage is so much higher in the equities than in the physical bullion. We decided to move into stocks, and we have participated in a number of private placements in the past 3 or 4 months in companies that are highly leveraged to the price of the metals going up.

I am putting my money down on the price of gold going up, and seeing a quantum increase in the precious metals equities.

- Source, Eric Sprott via the Sprott Group:

Wednesday, December 11, 2013

Eric Sprott and David Morgan on the CFTC

Eric Sprott and David Morgan discuss the CFTC on the Financial Sense news hour.

Monday, December 9, 2013

How did we miss the top of the market, in 2011?

With the benefit of hindsight, anyone can say that we all should have been selling in ’11. But we stayed in because the facts at the time seemed indicative of more growth, not a peak and subsequent decline.

Back then, it was suggested that the Fed might exitQE 2. Some might have interpreted this as a reason to sell gold, much as suggestions of ‘tapering’ recently were interpreted in that way. They launchedQE 3instead, which we expected to be bullish for gold.

So they did not exitQE; they added more stimulus instead. In addition, the Chinese entered the market, buying at least 1,000 tons more in 2012 than in 2011. Despite these facts, gold has continued to founder.

Disregarding China and Russia, since that gold is consumed domestically before entering the global market, the yearly mine supply is roughly 2,100 tons of gold. It surprises me how China can enter the market and buy 50% of available mine supply, or an additional 25% of the total supply, and yet the price of gold declines.

Where is the supply of gold coming from? I have publicly claimed that I believe gold ETFs are seeing their physical holdings go to China. In my view, this is where the 700 tons of physical gold that were redeemed during the first six months of ’13 ended up.

Meanwhile, the world’s largest consumer of physical gold – India – has been stifled. Government has imposed some very draconian measures to stop people from buying imported gold, and this has worked. Officially reported gold import numbers declined very severely, and premiums jumped for domestic gold sales.

So despite this bear market for gold, I view people who are willing to sell gold here as extremely short-sighted. For now, the Chinese demand for gold is (I believe) being supplied by gold draining out of ETFs, and the fact that Indians cannot get their hands on the stuff legally. How much longer can this current situation hold?

All of these factors stopped me from telling investors to sell gold and other precious metals in 2011.

Add to this the fact thatQEkeeps increasing and that ‘tapering’ has been thrown out by the Fed. There is a very solid case for continuing to own gold and other precious metals equities right now.

- Source, Sprott Group:

Saturday, December 7, 2013

What's Next for Gold?

Eric Sprott, CEO of Toronto-based Sprott Asset Management, says gold's price has recently dropped because faulty statistics underreport demand and overestimate supply.

In October he wrote an open letter to an industry group, asking them to change the way they calculate supply and demand for gold in a way that would make the metal seem like a hotter commodity.

"This lack of quality information has certainly been one of the driving factors behind the lack of investors' confidence towards gold as an investment," he wrote.

In an interview, Mr. Sprott called gold's recent drop in price "bizarre."

- Source, Wall Street Journal, read the full article here:

Thursday, December 5, 2013

Eric Sprott to Step Back From Daily Fund Management by End of 2014

Sprott Inc. is changing focus and investment strategy, as its gold-focused founder Eric Sprott prepares to step back from daily fund management ...

- Source, Globe Investor:

Tuesday, December 3, 2013

What will it take for precious metals and precious metals equities to turn around?

It has to be the precious metals prices themselves. The stocks are probably 99% correlated to the price of the underlying metals being produced or explored for, and they typically go up two or three times faster than the precious metals prices.

Going forward, I believe we will begin to view the levels we saw this summer – with the lowest low on June 28 – as the bottom for the price of gold. For the stocks, it will all be about metals prices.

- Source, Sprott Group:

Sunday, December 1, 2013

Gold is Going to $2400 by Next Summer

Billionaire Eric Sprott backs up his prediction that gold will hit $2400 by next summer. Taped at Cambridge House's Toronto Resource Investment Conference 2013. A must-see interview!

Friday, November 29, 2013

United States is Going the Way of Detroit

“I compare it to what’s happened in Detroit, where 10 years ago we knew they were broke, and finally, one day they said they were ‘broke.’ The outcome of that was they told the pensioner, ‘You can only get 33 cents on the dollar.’ And the same will happen to the US (pensioners).

What happens when someone’s (social security or pension) check falls by 50% or 60%? The economic chaos that will ensue will be unbelievable. But it’s going to happen. It’s so clear cut there is nothing that can be done about it. The whole world has this huge debt problem. If you have this view that the countries are insolvent, what does it mean for all of us? I’m talking about, as human beings, how is everyone going to survive? It’s a scary prospect.

We don’t have enough jobs and income to support the profligate governments that we have. We just don’t have enough. The disposable personal income and wages keep going down. We have 50 million people on food stamps, and we get 10,000 people a day retiring. Anybody, mathematically, can tell you we can’t afford it.

What do we cut first? So far in the US they have cut nothing. It’s interesting, Eric, by analogy, even in Canada, which has a pension fund, people under 35 have already been told that they can’t retire until they are 67. We (Canadians) know we don’t have enough, and we have a fund with money in it. In the US there is no fund. They pretend that there is some fund there, but there is literally nothing in the fund. So there are going to be some (horrific) consequences down the line.”

Wednesday, November 27, 2013

Silver and Silver Stocks Will Go Much Higher!

Eric Sprott - Chairman of Sprott Inc & Sprott Money Ltd, and CEO, CIO, and Senior Portfolio Manager of Sprott Asset Management is our guest.

- Source, Gold Seek:

Friday, November 22, 2013

It's Impossible to Deal with the Debt

“The United States is already insolvent. They announced their own GAAP budget deficit, which was $6 trillion last year. $6 trillion! They (only) had revenues of $3 (trillion). And the combined debt and entitlements is now $60 - $70 trillion.
Now, can you expect somebody with $3 trillion of annual revenue to be able to deal with $60 trillion of debt? It’s impossible. So, mathematically it’s over...."

- Eric Sprott via King World News:

Wednesday, November 20, 2013

China Now Imports 1,200 Tons of Gold

“The numbers speak for themselves. In 2012 I wrote that I can see 2,200 tons of net new buying per year in a market that produced (only) 2,700 tons (of gold). That was back in 2012. Just think, Eric, in the 12 months to August of 2011, China imported something like 100 tons (of gold). Now they import 1,200 (tons of gold). They’ve increased their tonnage (of gold purchases by a staggering) 1,100 tons.

If the total (world) supply, including recycling is 4,000 (tons), which I highly doubt, that means they’ve come in and bought an extra 25% of the market. How can somebody come in and buy an extra 25% of the (entire global) market at that same time that the price falls by 30% or 40%? It’s just totally ridiculous that it would ever manifest itself that way. If they bought (an additional) 25% of the oil, wheat, or the corn markets, the price would not be going down.”

Monday, November 18, 2013

Recent Price Drops in Gold Bizzare

Eric Sprott, CEO of Toronto-based Sprott Asset Management, says gold’s price has recently dropped because faulty statistics underreport demand and overestimate supply.

In October he wrote an open letter to an industry group, asking them to change the way they calculate supply and demand for gold in a way that would make the metal seem like a hotter commodity.

“This lack of quality information has certainly been one of the driving factors behind the lack of investors’ confidence towards gold as an investment,” he wrote.

In an interview, Mr. Sprott called gold’s recent drop in price “bizarre.”

Saturday, November 16, 2013

We Have NEVER Printed More!

“We have never printed on a daily basis more than we are printing right now, and all the while, interest rates doubled! Just the talk of tapering moved the rates significantly higher. I happen to believe that they have lost control of the bond market. Just by talking the talk the rates doubled and if they walked the walk, I think we would see a dramatic increase in rates here and severe carnage in the bond market.”

- Eric Sprott via a recent Silver Doctors interview:

Thursday, November 14, 2013

The Next Move in Gold...

“Eric Sprott…is as aggressive as I have seen him since the year 2000…he is as is his style, the style that has made him a billionaire, very aggressively going into the marginal junior producers…companies that barely make money at $1400, but would be making $800 or $900 an ounce if the gold price went higher….

Eric believes that gold within 12 months will certainly be above $2000…[and] that this is the year where his portfolio will see ten to fifteen–10 to 20 baggers.”

- Rick Rule discussing Eric Sprott in a recent interview:

Tuesday, November 12, 2013

Chinese Yuan Will be the Dominate Currency Going Forward

“We’ve had so many false starts (and promises) -- ‘The economy is going to be great in 2010,’ and it’s not. ‘It’s going to be great in 2011, 2012, 2013,’ and it’s not. Now, they are already talking about it being ‘great in 2014.’ But we are actually regressing, even though they (central planners) don’t want to admit it, because the numbers are all manipulated in one way or another.

It will happen that gold will be accepted as the asset to back a (major) currency. And the currency with the most gold behind it, which I suspect is already the Chinese yuan, and growing rapidly, will be the dominant currency going forward. Of course this doesn’t portend well for all of the central planners currencies. They (the Chinese) are doing the smart thing by buying real physical assets. So I guess the best way of putting it is, just follow the Chinese, my friend, and you are going to be OK here.”

- Eric Sprott via a recent King World News interview:

Sunday, November 10, 2013

The Facts Don't Lie

"You can look at the facts on physical demand for gold and silver. You can look at the facts on government deficits, and you just have to take yourself to where it’s going (the end game). And whether it happens in a year or two, it’s going to happen...."

- Source, Eric Sprott via a recent King World News interview:

Friday, November 8, 2013

Eric Sprott's Response to World Gold Council

In his recent Markets At A Glance article, Eric Sprott criticized the World Gold Council on the quality of their gold demand data. In response, the WGC issued a statement on Thursday standing by their figures. Tune in to see what Eric Sprott has to say in return!

- Source, Sprott Money Weekly Wrap Up:

Wednesday, November 6, 2013

US Mint Sales of Silver Have Been Booming

“There is an interesting thing going on there, Eric. We get data out of India. They consumed slightly less than 2,000 tons of silver late year. It would appear they are going to consume 6,000 tons this year....

It might be a little early for me to say that because as gold has been restricted, that number might even be well above that (total of 6,000 tons of silver). In the first 8 months there were something like 4,000 tons (already consumed), so we are just extrapolating that trend, but the trend was gaining strength as the year went on.

But when you (as India) buy an extra 4,000 tons of silver in a year, you are buying an extra 17% of the (entire global) market. So we have a new entrant into the (silver) market who takes down 17% of the supply, and the price goes down. It’s the same analogy as China buying gold. They (China) buy 25% more of the (entire global) market and the price (of gold) goes down.

Those things don’t hold together. Logically this should not happen (the price of silver going down). So, I’m very optimistic on silver. The US Mint silver sales have just been booming here. They are still 50/1 in terms of the physical relationship to gold at the US Mint. We (only) produce 11-times more silver (than gold). We (only) have about 3-times more silver (available) for investment, and yet investors, via the (US) Mint, are buying it at a 50/1 ratio to gold. That cannot persist too long without the price of silver going up (substantially).”

- Eric Sprott, as seen on King World News:

Monday, November 4, 2013

Eric Sprott Defends Andrew Maguire

Eric had this to say in defence of Andrew Maguire:

“Obviously I believe everything that Andrew has said, including the information that he had given to the SEC when they didn’t follow-up on it. I heard him speak in London in 2011, and I believe everything he has done is absolutely correct.

When he gives interviews with you, and he tells you about the tonnage that moves around, sure enough you see it — then the GOFO rate goes negative. Obviously there is a huge shortage of gold, which everyone is trying to cover up. So I believe totally in what Andrew says, and I think he’s been a great spokesperson for the gold community.”

- As seen on Sprott Money:

Saturday, November 2, 2013

The US Debt Ceiling and How it Affects Gold

Join us on our discussion with John Embry, Chief Investment Strategist of Sprott Asset Management, and Peter Spina, President and CEO of in regards to the US debt ceiling and its implications on gold and silver.

- Source, Eric Sprott's, Sprott Money Weekly Wrap Up:

Saturday, October 26, 2013

Open Letter to the World Gold Council - Official Gold Statistics Are Misleading

by Eric Sprott, Markets at a Glance:

Dear World Gold Council Executives;

As you very well know, the business environment for gold producers has been extremely challenging over the past few years. While demand for physical gold remains extremely strong, prices on the COMEX have fallen precipitously. This contradictory situation is the single most important obstacle to a healthy gold mining industry.

In my opinion, the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading. It is not the first time that GFMS (and World Gold Council) statistics have come under pressure from the investment community. In his now celebrated “The 1998 Gold Book Annual”, Frank Veneroso demonstrated the inconsistencies in GFMS gold demand data and proceeded to show how they grossly underestimated demand. The tremendous increase in the price of gold over the following years vindicated his conclusions.

For very different reasons, we are now at a similar pivotal point for gold. Over the past few years, we have seen incredible incremental demand from emerging markets. Indeed, so much so that the People’s Bank of China has announced that it is planning to increase the number of firms allowed to import and export gold and ease restrictions on individual buyers.1 In India, the government has been fighting a losing battle against gold imports by imposing import taxes and restrictions.2Moreover, Non-Western Central Banks from around the world are replacing their U.S. dollar reserves by increasing their holdings of gold.

But, demand statistics reported by the World Gold Council (WGC) consistently misrepresent reality, mostly with regard to demand from Asia.

To illustrate my point, Table 1 below contrasts mine production with demand from some of the world’s largest gold consumers. According to WGC/GFMS data, the world will mine, on an annualized basis, about 2,800 tonnes of gold for 2013.

But, I adjusted these figures to reflect mine production from China and Russia, which never leaves the country and is used solely to satisfy domestic demand. After adjustments, we have a total world mine supply of about 2,140 tonnes. On the demand side, I make some in-house adjustments to better represent demand from emerging markets. To proxy for gold consumption in China, Hong Kong, India, Thailand and Turkey, I use net imports of gold, as reported by their various governmental agencies. While imports might in general be an imperfect proxy for demand, those countries see very little re-export of what they import and keep most of it for themselves, so it is not unreasonable to assume that what they import they “consume”, on top of their domestic production. To this I add the demand, as estimated by the GFMS, from other countries and that of central banks. I annualized the year-to-date figures and found that for this year, annualized total demand is approximately 5,200 tonnes. On that basis, “core” annualized demand is approximately 3,000 tonnes more than mine supply.


Sources: GFMS data comes from the WGC’s “Gold Demand Trends” publications for 2013 Q1 & Q2. Chinese mine supply comes from the China Gold Association and is up to August 2013, the annualized number is a Sprott estimate.5 Russian mine supply comes from the WBMS (Bloomberg ticker WBMGOPRU Index) and is for 2012, 2013 statistics are still unavailable. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Aug. 2013 and is annualized to account for the 4 missing months to the year. Changes in Central Bank gold reserves are taken from the IMF’s International Financial Statistics, as published on the World Gold Council’s website for 2013 Q1 & Q2 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013 Q1 & Q2. ETFs data comes from Bloomberg’s ETFGTOTL Index.

However, these figures also exclude what the GFMS dubs “OTC investment and stock flows”, which is a name for a simple plug because no one really knows what is traded in the OTC market. Also, to remain conservative and avoid possible double counting, I exclude the category “technology” from my demand estimate, which the WGC/GFMS estimates to be about 400 tonnes a year.6 Certainly, some of this demand is captured by the demand numbers for China, Turkey, India or Thailand, but it is near impossible to disentangle them. Nonetheless, it should be kept in mind that my demand estimate is conservative and probably understated by a few hundred tonnes.

Of course, another important source of supply is gold recycling, which the GFMS estimates at about 1,300 tonnes for the year. However, this number is questionable at best as gold recycling is hard to estimate. But, most importantly, a large share of it is probably done in India and China, which as mentioned before do not re-export their gold. In the context of my analysis, recycling from those countries should therefore be excluded from the total supply number.

The real incremental source of supply this year has been the flows out of ETFs. According to data compiled by Bloomberg, and as shown at the bottom of Table 1, ETFs have seen outflows of approximately 724 tonnes year-to-date. On an annualized basis, this represents an additional supply of 917 tonnes. But, this incremental supply is only temporary. As shown in Figure 1 below, ETF holdings of gold seem to have stabilized at around 1,900 tonnes after a rapid decline in the first few months of 2013.

The evidence presented here is clear, demand for physical gold is extremely strong and, in reality, without the massive outflows from ETFs (half of world mine supply), it is hard to imagine how this demand would have been met. Since ETFs have a finite size (about 1,900 tonnes left), these outflows cannot continue for much longer (see our article on the topic).7 All these observations point to a considerable imbalance between supply and demand (unless Western Central Banks decide to fill this void with what is left of their reserves). If recycling was reduced by one half (China, India and Russia) and the temporary sales from ETFs were excluded, demand could be as high as 5,185 tonnes versus supply of 2,140 tonnes. The supply-demand imbalance is obvious to all.



Source: Bloomberg

As was the case when Frank Veneroso first published his book in 1998, the GFMS methodology understates demand and the World Gold Council, by using data from the GFMS, misleads the market place.

To conclude, I urge the leaders of the World Gold Council, for the benefit of their own members, to improve the quality of their data and find alternative sources than the GFMS, which paints a misleading picture of the real demand for gold. This lack of quality information has certainly been one of the driving factors behind the lack of investors’ confidence towards gold as an investment. Gold has been one of the best performing asset classes since 2000, and the World Gold Council should be promoting it accordingly.


Eric Sprott

- Source, Markets at a Glance:

Thursday, October 24, 2013

Eric Sprott's Take on the Government Shutdown

Listen to Eric Sprott's views on how the US government shutdown affect the precious metals markets, and more importantly, your investment in pensions and retirement savings.

- Source, Sprott Money:

Tuesday, October 22, 2013

Don't Expect the Money Printing to End

Money manager Eric Sprott was not surprised by the Fed announcement to keep printing $85 billion a month. Don’t expect the money printing to end any-time soon because Sprott predicts,“If my forecast for the U.S. economy is true, they will be doing it forever.” 

When the Fed first started taking about cutting the money printing, Sprott points out, “It was a great excuse to bomb gold, and now that’s off the table. I think we will see people moving into gold (and silver) . . . The U.S. dollar is under incredible pressure here.” 

Sprott, who manages $8 billion in precious metal investments, goes on to say, “I can guarantee you the U.S. government is insolvent today, but they’re just not doing anything about it. So, when they finally do something about it, instead of cutting entitlements 25% or 40%, just like Detroit, it will be 75%.” Sprott goes on to say, “ We’re buying more bonds on a daily basis, and rates still went higher, which is why I can definitively say the Fed lost control of the bond market. That is why they could not ‘taper’ because who’s going to buy all the bonds? Bonds are for losers.”

- Source, USA Watchdog:

Sunday, October 20, 2013

Sprott Launches New Offshore Fund with Zijin Mining Group

TORONTO, Sept. 27, 2013 /CNW/ - Sprott Inc. (TSX: SII) ("Sprott" or the "Company") today announced that it has launched a new offshore global mining fund (the "Fund") with Zijin Mining Group Company Limited ("Zijin"). All relevant regulatory approvals have been received in Canada and the People's Republic of China and the Fund has been initially seeded withUS$100 million from Zijin and US$10 million from Sprott.

"We are very pleased to launch this new fund which will allow us to open a new market for our investment products," said Peter Grosskopf, CEO of Sprott. "Zijin is the largest gold producer and the second largest mined copper producer in China and is listed on both the Hong Kongand Shanghai stock exchanges. We believe the combination of Zijin's technical strengths and Sprott's resource investment expertise will prove to be an attractive option for investors looking to invest in the mining sector with a focus on gold."

The Fund management company is a joint venture between Sprott and Zijin and will invest primarily in the publically-listed equity and debt instruments of gold, other precious metals and copper mining companies. The Fund will be co-managed by affiliates of Sprott and Zijin. Under the joint venture agreement, Americas Now Resources Investment Management Corp. has agreed to provide technical and marketing services to the Fund.

The target size of the Fund is US$500 million and the Company anticipates receiving additional commitments from onshore Chinese investors beginning in the fourth quarter of 2013.

- Source, Sprott Inc:

Friday, October 18, 2013

New Chairman of the Federal Reserve Janet Yellen

This week, Janet Yellen was elected as the new Chairman of the Federal Reserve. What does this mean for the gold and silver markets? Join us and listen to Eric Sprott's views on this now!

- Source, Sprott Money:

Wednesday, October 16, 2013

This Housing Market Has Got to Fail

"We've seen redemptions of bond funds. I, for my life, can’t see how at this point in time the Fed pulls back on their bond buying because rates would just go crazy (to the upside).

The jobs numbers that came out in the last two months, you know we averaged about 130,000 (jobs) when they adjusted July down, and August was kind of so-so -- and you can drive a truck through the numbers anyway. It’s my suspicion that there are a lot of the jobs are part-time jobs, and so I think we have a really weak economy here.

And if they do taper, and rates go higher, we already have a crushing situation in housing, where literally the cost of buying a house on a monthly basis, i.e. the interest rate cost, the principal cost, and the cost of the house has gone up 10% or 15%, is up (in total) 50% year-over-year. And nobody’s income is up 50%. I would be surprised if it’s up 2%. In fact, it’s probably down with the increase in social security taxes.

So this housing market has got to fail. The Fed knows this. The charges against the US Treasury are rising as rates are rising, which means the deficit is going to go back up. I wrote a paper, I guess it was about three or four months ago, asking, has the Fed lost control of the interest rate markets? And I suspect they have."

- Eric Sprott via King World News:

Monday, October 14, 2013

There is a Shortfall of Gold

I think there is a continued suppression going on -- the numbers (definitely) argue for that. There aren't a lot of numbers available, but even the few we have, like the six or seven sources, I calculated a year ago that there is a shortfall of something like 2,200 tons (of gold) each year in a 4,000 ton market.

- Eric Sprott via King World News:

Thursday, October 10, 2013

The Fed Has Lost Control of the Bond Market

In his most explosive interview with SD ever, CEO of Sprott Asset Management Eric Sprott discussed his thoughts on the Fed's no-taper, why he believes the cartel took down gold this spring, the evidence that a bail-in is coming to the US and Canada, and the US fiscal debt crisis.

- Source, Silver Doctors:

Tuesday, October 8, 2013

Gold is Going to $2400 by Next Summer

Billionaire Eric Sprott backs up his prediction that gold will hit $2400 by next summer. Taped at Cambridge House's Toronto Resource Investment Conference 2013.

- Source, Cambridge House:

Sunday, October 6, 2013

Bonds Are for Losers

The CEO of Sprott Asset Management, Eric Sprott, says, "We're buying more bonds on a daily basis, and rates still went higher, which is why I can definitively say the Fed lost control of the bond market. That is why they could not 'taper' because who's going to buy all the bonds? Bonds are for losers." Join Greg Hunter as he goes One-on One with gold and silver expert Eric Sprott who manages $8 billion.

- Source, USA Watchdog:

Friday, October 4, 2013

Is Billionaire Eric Sprott Selling Silver?

Marin Katusa, the Chief Energy Investment Strategist from Casey Research asks Eric Sprott a number of questions about gold, silver and his plans for Sprott going forward.

- Source, Casey Research:

Wednesday, October 2, 2013

The Bull Market Has Started Again

“Well, as I sit back and look at it, Eric, I think it is the greatest. To imagine you could make that much money (3,000%) in one year, as other financial markets are not performing well. And here we have this huge opportunity to own the metals, and/or the shares, and make this out-sized return, which is exactly what happened in that last decade when the gold stocks rallied by 1,800% off the low.
So that’s the type of thing that we’re looking at here -- a re-continuation of that phase. We took a 2-year pause, but it certainly looks like it has restarted again.”

- Eric Sprott via King World News:

Monday, September 30, 2013

Is Canada Safe From the Next Financial Crisis?

We’re in way better shape. We have a pension plan. We have a pay as you go healthcare plan. We don’t have the amount of unfunded obligations that the US has, although we have unfunded obligations. We won’t be as badly off as the US will be, because they’re just not dealing with issues down there, because of the political quagmire they have.

But it’s not saying that we’re going to have a problem; we’re always the tail that’s wagged by the dog. But on a relevant basis, we’re going to be better off. I think we’ve got a better banking system. We have better budgetary controls, although some provinces seem to be out of control. I don’t think we have quite the same issues with the municipalities. We have more natural resources per capita. So, we’re definitely going to be better off, but that’s not to say we’re going to be unscathed.

If it’s all just a big Ponzi scheme, we all just print money as all these major capitalist countries are doing, there’s an unintended consequence of it. I don’t know whether it’s going to be inflation or massive deflation, but there will be something come out of it, because the life and the place we’re living today is not normal. I’m talking about the financial area for now, and there’ll be consequences for that. I don’t think it’ll be as bad here but that’s not something that says we won’t have to endure some pain.

Saturday, September 28, 2013

Taper was Just Talk

I've always believed that the Fed is in a very difficult situation and the ‘taper’ was just talk. And we’ll see whether they ‘walk the walk’ or just ‘talk the talk.’ As you know, Eric, yields have doubled over the last 12 months, and in particular with the reintroduction of the taper talk.

We know that there is massive selling of bonds, whether it’s the Chinese, or the Japanese, and I would imagine a lot of the emerging countries are now selling US bonds....

- Eric Sprott via a recent King World News interview:

Thursday, September 26, 2013

China is Importing Over 100 Tons of Gold Per Month

What is China doing? Now, we have one data point on China and one only, and that’s exports from Hong Kong into mainland China. But I can assure you there are exports (of gold) from places different than Hong Kong, into China, but we don’t get to see the numbers.

So I can imagine (the immense) gold flows from Geneva to Shanghai, or London to Beijing, or New York to Shanghai, but the Chinese don’t publish that data. But the data (which is published) shows that China is (now) importing over 100 tons (of gold) each month.

- Eric Sprott via King World News, see the full interview here:

Tuesday, September 24, 2013

Bull Market in Silver

“I think the most important thing that your listeners (and readers) would want to understand is that we have a bull market in silver stocks -- they are up about 50%, we've got a bull market in gold stocks -- they are up something approaching 30%, we have a bull market in silver -- it’s up over 20%.

We don’t have a bull market confirmed in gold yet, but it’s my expectation that this will happen forthwith..."

- Eric Sprott via King World News:

Sunday, September 22, 2013

How Investors Can Make 3,000% In 1 Year!

"As I look at the landscape and see all of the obvious things that indicate a shortage of gold, and a lot of demand for silver, it would seem to me that we are going to see some serious price spikes here.

I’m suggesting that within the next year we would see something like $2,400 (for gold). What all of that implies is the opportunity in the equity side (mining stocks) is spectacular ... There will be some (companies) that will go up 10, 20, and 30 times (in price) within a year.

To me, those are opportunities that rarely present themselves, and I've been in this business a long, long time. I don’t even think I’ve seen an opportunity where you could imagine that within a year you could make 3,000% on something. So I think it’s a great opportunity for people."

- Eric Sprott via King World News, read the full article here:

Friday, September 20, 2013

Continue to Own Hard Assets

“Currencies are collapsing. So there’s trouble out there, all over the place, which of course would suggest that owning hard assets continues to be the thing you should do.”

- Source, JB Investment:

Wednesday, September 18, 2013

COMEX Inventories Are Going Down

We see all of these weird things like this gold leaving London to go to Switzerland. I mean that’s a serious amount of gold -- almost 800 tons in six months. 800 tons is about 1/3 of (annual) mine supply, in half a year. If it kept going at that pace it would total 2/3 of (annual) mine supply for a whole year.

So there are all of these things going on in the gold market that tell you there is a shortage. Our own analysis of the supply/demand (also) tells us there is a shortage. The GOFO rate being negative, backwardation in gold, COMEX inventories going down, shipments from London to Asia, the activity on the Shanghai Gold Exchange, they are all saying the same thing (that there is a shortage of available physical gold).

- Eric Sprott via King World News, read the full interview here:

Tuesday, September 17, 2013

I Take a Big Macro View of Gold

As you know, Eric, I take a big macro view of gold here, and what I sense all along is that the Western central banks must really be running on fumes when it comes to (physical) gold. I must say that I am never disappointed by the data points that I see in physical gold.
For example, I just saw the Perth Mint, their gold sales were up 50% and the silver sales are up 70%. The Bank of England, the Royal Canadian Mint, all of the sales are up and getting into seriously high numbers. All the while, this is all predicated on the gold and silver supplies hardly going up at all.

In fact, I think the gold supply will be down this year from maybe even back to (the year) 2000....

- Eric Sprott via King World News, read the full interview here:

Monday, September 16, 2013

There is No Way Out

In the care of Detroit, what made them go bankrupt? They couldn't write the cheque. That’s essentially what happened. They ran out of money, and they had to declare bankruptcy. They didn't have a choice.

In the case of the United States, they can keep writing cheques because they can just print money. But it’s when you have to keep printing more, and more, and more. You know, if your obligations, because some of these obligations become cash obligations in due course, because as people retire and as more people over 65 get Medicare and Medicaid, there’s a real cost to this stuff. And in order to write that kind of cheque, you have to print more and more money all the time, because it just goes onto the budget instead of not being on the budget.

So, that day is going to come when your deficit goes from a trillion to a trillion and a half, to two trillion, to two and a half trillion. Then everybody’s going to know this is ridiculous, and try to finance it in the market, i.e. if you asked real bond holders to buy those things, what would interest rates be when you have such a low grade credit when looked at in the true light of day. I mean the interest rates could be substantial, which would just cause an even worse deficit.

There’s no way out, as far as I'm concerned. We’re all just living through it here, just as we did with Detroit. There was no way out. There’s no way out for the US, in my mind, and many other governments and states and cities and the whole bunch. I don’t know the day, but I know it’s going to happen.

Saturday, September 14, 2013

The FED Has NO Exit

I think we all know the Fed’s irresponsible. Zero interest rates and printing money. I mean, everybody on the planet Earth knows it’s irresponsible. Lots of people are prepared to fade the Fed, and play the game and all that.

So the Fed, from time to time, has to appear like they’re acting more responsibly. That’s why they keep coming out with this chatter in the minutes of the meeting and things like that. “Well, we could plan an exit from the bond strategy after QE1 and QE2.” Of course, there never was an exit, by the way, but you got to keep saying it to make everyone think that you’re being responsible.

Because, you know what, there are not just people in the Western capitalist area that watch what’s going on in the United States of America. There’s the Chinese, and the Russians, and the non-aligned people who are looking in and saying, “Oh my god, what are those people doing printing all that money and having zero interest rates? Maybe I don’t want to own these dollars.”

So, they have to, from time to time, appear to be responsible. I think that’s what they use the minutes of the meeting for. Never, of course, the real action, but the talk is what they use to try to persuade people that they’re being somewhat reasonable, even though when they start the actual activity, they don’t change anything. They talk the talk. They don’t walk the walk.

Thursday, September 12, 2013

The United States is Broke

“Well, Eric, I guess I would start out with my fundamental conclusion about the financial system in the world. It’s obvious to me that the U.S. government is broke. That’s the easiest calculation in the world to make…

That’s what I fear is going to happen in the U.S. — that we keep delaying, and delaying the obvious, and then someday there is going to be something that happens, and of course the cuts that people with have to exist with in Medicare, social security, government pension checks, will be way bigger than it had to be because nobody did anything about it in the meantime.”

- Source:

Tuesday, September 10, 2013

Sprott Precious Metals Round Table

The Fed taper. Turmoil in the Middle East. 
Selloff in Emerging Markets. 
What does it all mean for precious metals?

To find out, join our webcast on September 24, 2013 for a round table discussion with Eric Sprott, Marc Faber, Rick Rule and John Embry.

You can register for this round table by clicking here.

Wednesday, September 4, 2013

Gold Could be $5000 to $10000

I'm only looking at 1 year in this conversation, but 4 years from now you could be somewhere in the $5,000 to $10,000 range with the amount of printing and debasement that’s going on.
And of course this financial situation that all of these governments find themselves in -- they are essentially broke. And if governments are broke, then you don’t want to have your money in a bank. So you've got to put it in gold. You could imagine where you get this tidal wave of interest in gold, which we already have by the way -- certainly in China and India. I can (also) sense that there are a lot of people refocusing on gold and silver today, which is manifesting itself in the prices. 

So it’s not too hard to imagine there could be a situation where there is a great run on gold. I've said many times that I think there is a shortage of gold, and there has been a shortage of gold for a long time. This got particularly acute late last year and early this year, which I think is what caused the raid. Of course it (the raid on gold) totally backfired as demand just sky-rocketed.

- Source, Eric Sprott via King World News:

Monday, September 2, 2013

A Return to Fundamentals

Daily paper volumes are many times larger than annual mine production. I believe that the return to fundamentals driving gold prices will be triggered by a shortage of physical gold and ultimately, a failure to deliver. We already see signs of physical gold shortages, as evidenced by the negative Gold Forward Offered Rates (GOFO) rates, record low physical inventories and backwardation in the futures market.

- Source, Eric Sprott via the Globe Investor:

Friday, August 30, 2013

Smoke and Mirrors

It was smoke and mirrors since day one. In fact, in the back of my mind, I suspect they might even have used the taper talk as a reason to hammer gold. Of course, they didn't realize that interest rates would go up. When Dr. Bernanke was asked that at one of the latest hearings, he said he was very puzzled by interest rates going up. This is the Chairman of the Federal Reserve Bank, puzzled by rates going up. That seems like an incongruous kind of situation that he’d be puzzled.

But I think he scared the hell out of people, because everyone was assuming they’d just print, print, print. The minute they said they may not print, of course, who’s the biggest loser out of it all? Gold. I think it was meant as part of the whole policy of keeping gold under control, which I think is a major problem that these central banks have in gold today. That’s why it was part of the process of getting the price of gold down.

- Source:

Wednesday, August 28, 2013

Patience Will be Rewarded

I have always believed that I am right and that markets are wrong, but throughout the years, I have had to endure situations like this. It happened in 1998 and 2008, but my funds have always rebounded. In due course, the markets will realize their failure. After this short pause, the gold bull market will continue and those that have been patient will be rewarded.

- Source, The Globe Investor:

Monday, August 26, 2013

Economic Data is Very Punk These Days

I don’t see the taper happening. The minute he mentioned taper and it was this negative reaction in the bond market, negative reaction to stock market, as you and your listeners would know there was recant after recant the next day. “Oh, well, people misunderstood Dr. Bernanke. He didn't really say that,” and of course, subsequently he said, “Well, you know, we could taper. We could also increase buying of bonds depending on the economical data.”

In my mind, the economic data is very punk these days. I mean, retail sales were up 0.2 percent last month. They were up 0.1 percent the month before. The labor numbers were awful for the last month. Not only did we not have many jobs, the average hourly earnings went down. The average work week went down.

It was one of the most brutal reports I've ever seen in my life. My own analysis of what’s going on is we have created a situation in the States where we’re replacing full time employees with part-time employees, and pretending that it’s a job gain. But the reality is that the total income of workers is not going up at all. So, I don’t see taper happening.

If they did taper, I think we've seen the worst in gold from the taper talk. Now, gold’s going to live its own life here, based on other fundamentals that are going on. Then, of course, you and I can talk about those fundamentals. So, I think it’s going to have its own determination based on things other than taper talk, or buying extra, fewer than 10 billion bonds in a month.

I don’t see that as having any impact. I think the biggest impact might be if they actually tapered. They said they were going to do it, that rates might just keep going up here, and, of course, that would be an awful economic development for everyone. The stock markets would come under pressure, and the bond market, of course, would come under even more pressure than the crash that we've already had in the bond market.

Saturday, August 24, 2013

Money Printing Can Hide Financial Problems for a While

I think that the Fed will remain accommodative for a very long period of time. However, the official debt is only the tip of the iceberg and, as we discussed in the most recent Markets at a Glance, longer-term benefits such as social security and medical care will have to be cut as well. The promises made by governments are too generous and cannot be kept. Not just for the average Joe but for everyone, I think we should expect less from the government and prepare to fend more for ourselves. Money printing can hide financial problems for a while, but it can’t provide tangible services to citizens.

- Source, The Globe and Mail:

Friday, August 23, 2013

Many More Detroit's Coming!

I had the great honour of interviewing Eric Sprott in our latest episode of Ask the Expert. Eric Sprott is Chairman of Sprott Money Ltd. Additionally, he is CEO, CIO and Senior Portfolio Manager of Sprott Asset Management LP and Chairman of Sprott Inc. Eric has accumulated over 40 years of experience in the investment industry and has earned a recognized standing not only as one of the world’s premier gold and silver investors, but also as an expert in the precious metals industry.

During the course of this interview we were able to delve into some of the most important topics currently afflicting the precious metals market. Shown below are a sample of the questions I was able to ask Eric Sprott:
  • Do you see a possibility of the Fed tapering? If the Fed does taper, how will this affect the price of gold? How will it affect interest rates?
  • Do you foresee many more Detroits coming in the future?
  • In the gold and silver community, there’s a vicious attack that began in April. Do you believe this was a coordinated effort by central banks to stop the flow of gold? Do Western central banks have the gold they claim to have?
  • When the next big correction occurs, what do you see in store for Canada? Do you see Canada being dragged down with the rest of the western world, or do you see Canada weathering the storm?
  • Do you believe that the worst is behind us? Do you believe gold and silver have begun the next leg up in this bull market?
As you will learn throughout the course of this interview, Eric believes that the worst is behind us. The central banks have fired their shots and failed. The FED can’t taper according to Eric. They have no choice but to keep printing. The question is, how long can they keep this house of cards together?

- Source, Sprott Money:

Monday, August 19, 2013

Explosive Gains in Junior Gold Miners

Billionaire Eric Sprott, the chairman of Sprott Asset Management, not only thinks the gold bull market is far from being over, but also says he expects to see junior gold mining stocks “higher by many hundreds of per cents,” soon.

Answering to Globe and Mail readers’ questions, the famed gold bug reiterated he thinks the market hit rock bottom on June 28th and that the price for the precious metal will be around $2,400 per ounce by mid-2014.

He added there is strong evidence that Central Banks worldwide have covertly conspired with bullion banks to sell their gold in the market.

- Source,

Saturday, August 17, 2013

Continuation of the Gold Bull Market

The continuation of the gold bull market will lead the junior gold mining stocks higher by many hundreds of per cents, just like it did during the 2008 recovery. By the way, since hitting the bottom on June 28, gold has rebounded by 12 per cent while gold miners have gone up by about 25 per cent.

- Source, The Globe Investor:

Thursday, August 15, 2013

Gold Should Double

I firmly believe that we reached the bottom on June 28th and that gold should double from that bottom within the next 12 months. So by next summer, I think that the price of gold will have made new highs and stand around $2,400 per ounce.

- Source, The Globe and Mail:

Monday, August 12, 2013

We Are All Detroit

Unfortunately if you think Detroit is an aberration, Eric Sprott is out to prove you wrong. A recent survey found that state and municipal pension plans were underfunded to the tune of one trillion dollars. Makes Detroit seem rather insignificant when you start throwing around the word trillion.

Sprott focuses on a report done by Boston University Professor Laurence Kotlikoff. He says to fix the funding shortfall in Social Security alone, the US would have to raise the FICA tax by 32% to 16.4% or slash benefits by 22%. Good luck getting either of those through Congress.

As for the Federal Budget as a whole, the professor says we are operating at a $222 trillion shortfall according to Sprott. To wipe it out, we would have to increase taxes by 64% or slash all expenditures by 40%.

Sprott concludes with the simple statement. We live in an age of a demographic time bomb. Every level government has promised too much and is now faced with the dilemma of how to walk back those promises.

What remains at the heart of the issue for Eric Sprott, is how much pain we will have to endure? Eventually the system will have to be fixed. Either we can endure a short term pain now, are a long hard slog later. Sprott concludes with this: “Over time, politicians from all stripes have proven adept at cognitive dissonance, but these increases in taxes and cuts to benefits will have to happen, one way or another; it is just a matter of time.”

- Source, Trade the News Room:

Saturday, August 10, 2013

Largest Municipal Bankruptcy in US History

Eric Sprott sees the Detroit bankruptcy filing as just the first of many dominoes that will inevitably fall in the coming years. At $18 billion, it represented the largest municipal bankruptcy in US history.

Inside the bankruptcy plan resides the issue of the chronically underfunded pensions. The city’ government made promises o its workers that it now cannot keep. The gap right now stands at $3.5 billion. Additionally, the gap of other unfunded post-employment benefits such as life insurance and health care stands at $5.7 billion.

Totalling the two out, the Detroit pension system faces a $9.2 billion shortfall. Under the bankruptcy restructuring plan, the $35 billion will be wiped out, while the $5.7 billion will undergo a 90% haircut. Essentially wiping it out in the process.

Pensioners would stand to lose $8,6 billion of future benefits or 41% of the value of ll their benefits of the proceedings go forward as planned. Obviously, the pensioners and unions will fight this in court, but Sprott out how predictable this issue was and how shocking it was the leaders did very little to mitigate the damage until it was too late.

- Source, Trade the News Room, read the full article here:

Thursday, August 8, 2013

Ask Eric Sprott His Latest views on the Gold Market

This week at Inside the Market, we’re inviting you to ask Eric Sprott for his latest views on the gold market. In his July commentary to clients, which you can see here, the CEO of Sprott Asset Management stands firm in his belief that the bull market isn't over and the precious metal will make a comeback after its recent downfall.

Mr. Sprott, one of the market’s best-known gold bugs, thinks that central banks are getting close to the end of their supplies and that the physical market for gold is becoming increasingly tight.

You can probe Mr. Sprott further by submitting a question by filling out the form below. We’ll select some questions for Mr. Sprott to answer, and publish his responses next week at Inside the Market.

- Source, Globe Investor, submit your questions here:

Sunday, August 4, 2013

The Detroit Template

By: Eric Sprott and Etienne Bordeleau

On July 18 2013, the city of Detroit officially filed for bankruptcy under Chapter 9. At $18 billion, this is the largest municipal bankruptcy in U.S. history.1 According to the current “proposal to creditors”2, the city’s pension plans have been chronically underfunded and the gap between the plan’s assets and liabilities now stands at approximately $3.5 billion. Additionally, the value of unfunded “other post-employment benefits” (OPEB) such as life insurance, health care, etc., now reaches $5.7 billion. There is thus a $9.2 billion gap between the total assets and the liabilities of Detroit’s pension and benefits system (Table 1 below).

According to the restructuring plan, the city intends to write off the entirety of the $3.5 billion pension deficit and give the OPEB liabilities (which are basically not funded at all) the same treatment as bondholders – a 90% haircut. The net result is that pensioners could lose $8.6 billion of future benefits, or 41% of the value of all the benefits (pension plus OPEB) they were entitled to before the city’s bankruptcy filing. Obviously, such a large clawback will have a profound effect on the livelihoods of the pensioners. Doubtless, this will have repercussions that will also affect the economic activity of the communities in which they live. What still puzzles us is how predictable Detroit’s problems were and how little was done to fix them before it was too late.



Source: City of Detroit – Proposal to Creditors, June 14 2013

Unfortunately, Detroit’s case is far from unique. A recent report by Standard & Poor’s highlights that, for 2012, the total deficit of S&P 500 companies’ pension plans and OPEBs amounted to $452 billion and $235 billion, respectively.3 Another report by the Boston College Center for Retirement Research surveyed 126 state and municipal pension plans and found that, for 2011, they were underfunded by approximately $1 trillion.4 Unfortunately, the report does not provide numbers for OPEB liabilities, but another report by the Pew Charitable Trust reports that for the 30 largest American cities, the average funding status for OPEB obligations is 5%.5 This suggests that this is a much bigger problem than what has been publicly reported.

While these numbers appear imposing, in reality, they are just the tip of the iceberg. The promises made by the U.S. Federal Government to its citizens are even more unmanageable. Every year since 2003, the U.S. Treasury reports the net present value of its future obligations for a 75-year horizon (the fiscal gap). This represents (almost) the real debt load of future generations. This metric, by the way, is almost always ignored by the mainstream media.

As of the end of the last fiscal year, the reported total Federal Obligations were approximately $85.4 trillion, an increase of $4.5 trillion from the prior year.6 However, those numbers do not fully reflect the total obligations of the government towards its citizens, since it does not take into account any obligations past the 75-year window.

Economist and Boston University Professor Laurence Kotlikoff has long been recognized as an expert on government finances.7 Based on the 2013 Trustees Report on Social Security’s longrun finances, he finds that the “infinite horizon” fiscal gap for social security alone (the difference between the present value of all future promised benefits and tax revenues) is around $23.1 trillion. To put these numbers into context, the U.S. GDP for this year is forecasted to be a bit more than $16 trillion.

Professor Kotlikoff calculates that to fully eliminate the shortfall in Social Security funding, the government would need to either cut all present and future social security benefits by 22%, or increase the Federal Insurance Contributions Act tax (FICA) by 32% (from 12.4% to 16.4%). But this is just to fix Social Security!

For the U.S. Federal Government as a whole, Kotlikoff estimates the fiscal gap to be around $222 trillion! This is many orders of magnitude larger than GDP. In order to wipe out this gap, the Federal Government would need to permanently increase all taxes by 64% or reduce all expenditures (with the exception of debt servicing) by a whopping 40%.

The problem is clear; every level of government has promised too much and is now faced with the politically unappealing prospect of either drastically increasing taxes for the working age population or significantly reducing benefits for the retired (or future retired). As evidenced by the Detroit bankruptcy, the longer we wait, the worse it will get. The greater the delay, the more pain and suffering citizens will face when the benefits and safety nets they have come to expect from the government suddenly disappear. Of course, the U.S. Federal Government is very unlikely to default in the same fashion as Detroit, but we should not be surprised if the “Detroit Template” of balancing the books predominantly by cuts to pensions and OPEB benefits is adopted by others. However, given that the Federal government would need to cut all expenses by 40% to balance the books (according to Kotlikoff), it is not hard to imagine that Social Security, Medicare and Medicaid would suffer haircuts in excess of those experienced by the Detroit pensioners.

Over time, politicians from all stripes have proven adept at cognitive dissonance, but these increases in taxes and cuts to benefits will have to happen, one way or another; it is just a matter of time.

- Source, Sprott Global:

Friday, August 2, 2013

There is a Shortage of Physical Gold

"It’s not going to work. Backwardation is telling you that people are unwilling to sell their gold at a price today where they can buy it in the futures market at a lower price, and get the use of the money for three months, and they are not prepared to do it. That’s what backwardation tells you -- that there is a shortage of physical gold today and that people aren’t willing to speculate that they are going to get delivery in the future. So all of the signs point to extreme tightness in the market.

You mentioned silver (earlier), which I think will outperform gold. Even when I look at this month’s sales of coins by the U.S. Mint, they have sold 100 times more silver coins than gold coins. Yet we only produce 11 times more silver than gold, and most silver is not available for investment, yet we see this huge investment demand for silver.
So I continue to believe that silver is going to be the investment of this decade. I see wonderful statistics out of India on silver. You can just imagine that if they can’t buy gold bars and coins, maybe they will start buying silver. Well, that would just be a monstrous amount of silver that the Indians would need and there is no way that the world can supply it."

- Source, Eric Sprott via King World News, read the full interview here:

Wednesday, July 31, 2013

There is a Serious Shortage of Gold

"I think it’s just been one big scheme to try to get people dissuaded from owning gold and to cause supply to come out. As you mentioned, because of it (central planner actions) we have the gold forward rates (for gold) being negative, backwardation, and inventories plunging, all of which have been manifested because there is a shortage of gold.

I believe there is a huge shortage of (available physical) gold. You have had many people comment on that -- Andrew Maguire over in London, who talks about all of the delays in shipments from the the LBMA, and people commenting that perhaps there will be a COMEX failure to deliver.

All of my work tells me that there is a serious shortage of gold on an annual basis. The central banks have supplied it in the past, but they don’t have the ability to supply it anymore. So I think we are getting set up for a big run in gold. It looks like we’ve already seen the bottom and I think we are well on our way here."

- Eric Sprott via King World News:

Monday, July 29, 2013

Phenomenal Story For Silver

It’s impossible for China to replace, if they imported over 800 tons of gold last year, and let’s say you couldn’t really buy it, the number they would have to buy is something like 48,000 tons of silver to replace that (gold equivalent). We only mine 25,000 tons a year, and there’s only 10,000 tons of that available for investment. And it looks to me like they (India and China) are buying it all right now.
So I think if this data is true we have the most phenomenal story for silver that you could possibly imagine. We will just nail those paper sellers to the wall here.

- Eric Sprott via King World News:

Saturday, July 27, 2013

COMEX Inventories Declining Rapidly

"In my mind what happened was the powers that be thought, ‘What are we going to do here? We can’t have people find out that the central banks don’t have any gold because it’s all been leased and sold to Asia. So, what are we going to do? Well, let’s go bomb the COMEX (price), and maybe everyone will sell their GLD, and we will go in and buy the GLD and redeem the (physical) gold.’
As you know, 600 tons of gold was redeemed. 600 tons is a big number. So we’ve had a 30% increase in supply because of the GLD liquidation. Of course during this time period, all of the investment advisors who told people to sell were the same people that covered their shorts. So they (bullion banks) have gone from being short gold to being neutral on the COMEX.

We have seen the COMEX inventories decline rapidly. We know that all of the dealer inventory on the COMEX has already been spoken for by delivery notices, so essentially there will be zero (inventory) if they ever make the delivery."

- Eric Sprott via a recent King World News interview, read the full interview here:

Monday, July 22, 2013

There is NOT That Amount of Silver

There is only a certain percent of the silver market which can go into savings because a lot goes into industrial. But here is the ‘piece de resistance,’ they said (India) imported 720 tons in April (annualize 8,000 tons). In May it went to 900 tons, annualized call it 11,000 (tons). We’re going from 1,900 tons (of silver Indians were purchasing) to 11,000 tons, in a 25,000 ton market. That’s impossible. There’s not that amount of silver available for investment.

- Eric Sprott via a King World News interview, read the full interview here: