Well, in a gold market that has 4,000 tons of supply, I see 6,000 tons of buyers. You know that the 2,000 tons has to come from somewhere. It has got to come from Western central banks and I think these Western central banks are depleting their gold resources. Someday they’re not going to be able to make the payment when somebody demands the gold.
Of course the guy demanding the gold would be either Indian or Chinese or the US retail coin buyer -- people like that. And all of a sudden people will realize that the demand was always way above supply. And the same thing for silver. I mean look at what India has done in the last two years. They’re buying 30% of the silver market up from 10%. How is that possible?
You could buy an extra 20% of the market and have the price go down. It’s mathematically challenging to come up with that conclusion unless somebody in the paper market just wants to make the price whatever he wants to make it. Somebody who has got deep pockets can make the price do anything he would want as long as nobody asks for the silver. So I’m pretty convinced that the physical argument is a very powerful one.
Legendary investor and Sprott Asset Management Chairman Eric Sprott explains why he expects a junior resource "renaissance" and how he became successful by "stealing value." He also describes why gold price suppression is doomed to fail, how India could shock the silver market, and mentions three gold juniors in which he's "putting his money where his mouth is."
Well, of course you won’t get a rebirth in the stocks unless you get a rebirth in gold and silver. I find it interesting that as we sit here today, though we don’t have the final numbers for the month of July, US mint sales I believe will be up at least 400% year over year.
Gold is dead. But we have a 400% increase in demand.
In the month of July, the US mint stopped silver sales. And ultimately silver sales for July, even though they missed about two or three weeks, I’m going to guess that we’re up at least 100%with two weeks of non-selling.
So you can see that there’s a move afoot here. It’s not just in the US mints or the Canadian mint in Canada, the Perth mint. Even at a company called Sprott Money where we sell coins on the internet, our business was very substantive in July.
So people are coming in to buy. I suspect that as we move into the second half of ’15, the physical demand out of Asia, and particularly India, really gets going. So there are lots of signs that there’s true interest in gold and if the interest in gold comes back, of course the leverage in the stocks is mind-boggling. I mean when the HUI index was last at around 110, the price of gold was probably $400. Today it’s at $1,100.
So you tend to think that there’s a lot of torque here. People actually started to believe that gold was going up. Most people, probably in the market, think gold is going down. So they’re probably pricing maybe $800 in the gold stocks today.
Well, if it ever reversed here, there would be a lot of catching up to do. So that could be very exciting if it were to manifest itself.
I believe that the physical buyers are there. The Russians are buying, the Chinese are buying, and the Indians are buying. People are buying. You would imagine everybody in Europe would be thinking, “OK, we got Greece going on. Is there going to be another one? Where is that other one?” There have been good sales in Europe recently of gold coins and silver coins. So you get enough of a groundswell that we could find out that we have shortages very, very quickly.
We’re going through the exact same thing in Greece. There has been no bail-in announced yet but if there’s a bail-in announced in a country that’s a little more developed than Cyprus, then in the countries around them who might be in similar situations, maybe then people will start reacting sooner.
I can think of Italy or Portugal or Spain or maybe some of the Eastern European countries. It could catch fire very quickly. I’m not suggesting it will. But when you have people starting to take money out of the banking system -- in terms of deposits --, that’s when we all find out what the assets [of the banks] are worth if they have to sell them.
When you have to sell an asset, it’s nowhere near the worth of some quote in the newspaper or some housing index that somebody says is up five percent this year.
You’re not going to get that market price. Now you have to sell it. The market will adjust to that.
Eric Sprott spoke at the Sprott-Stansberry Natural Resource Symposium on July 31st, 2015 in Vancouver. He took the opportunity to discuss his thoughts on BitGold, its relation to bitcoin and the role BitGold will play in the development of gold.
I’ve actually been very surprised that there hasn’t been more disruption at the university level for example. I mean here we have all these people taking on all these loans with the promise of some job that they don’t get.
They can’t possibly pay off the loans, and yet nobody seems concerned about them. How about if you’re at university today and you know darn well that when your time comes to get the social security, there’s not going to be any social security? Literally, people of my era are benefiting at the expense of people that are going to be in your era because all these programs that we have, we can’t afford. But nobody wants to cut them down to size -- not on their watch, not while they’re running the government, even though it’s so obvious that there’s no way that when you retire the social security benefits that you’ve been promised can be paid.
For example, they just announced that the disability fund is going to be out of money next year and then the retirement fund will be out of money in 2034. Well, that’s maybe getting to when you might retire.
But there won’t be any money there. So it’s a very difficult situation and I’m surprised that there haven’t been more people complaining. Maybe someday if food prices go up shockingly high -- perhaps because of the drought in California or other things -- when you start affecting food and its availability, then people will be more disruptive.
I don’t like to even contemplate those things. I would much rather just look at the economy. Let’s not get into how people are going to react, although it could be very negative tomarkets.
I just know that the economy is not functioning smoothly. Sooner or later-- because I have to care about these things -- stocks won’t sustain the highs that they’re at and the banking system won’t be able to pretend that it’s solvent.
And of course it’s the banking system not being solvent that always takes me to precious metals.
I think of the people in Greece, who could only get – what was it? -- sixty euros a day? Well, if they’d had their gold somewhere, they could cash something in. But they go to the bank and they got to get in the line-up and they get 60 euros in a day. I mean that doesn’t carry you too far. So I still believe that’s the ultimate manifestation that there’s no economic recovery. The banks will suffer. People will figure out that banks are risky and the money will go to where it should go -- precious metals.
They pretend that inflation is low but I don’t think inflation is low. As you would have seen in my presentation, there’s an index called the Chapwood Index that measures 500 different items in 20 different cities in the US. The index, every year from ‘11 to today, has been in the double-digits.
So imagine double-digit inflation with 2% GDP growth. You would be really shrinking at 8%. Today we saw that wage gains in the second quarter were 0.2%. Well, 0.2% in the quarter is like 0.8% for a year. I can assure you that everyone’s increases in healthcare costs this year will suck up more than that wage gain. Somehow these costs don’t go into the CPI thing. I don’t know how they don’t, but they’re just not going to tell us what inflation really is. It’s much higher than is being reported, I think.
It tends to distort all the numbers. It makes GDP way higher than it would otherwise be and tries to keep a certain calmness in a very, very difficult economic environment.
We have this constant interference by the powers-that-be to not let the markets function properly. In the bond market, it’s through low interest rates. I personally suspect that governments are in the stock market. We know the Japanese buy stocks. We know that the Swiss national bank buys stocks. We don’t know for a fact that the US government buys stocks but there might be methods by which they can convince people to “keep it together.” Every time we get a little correction, it bounces right back up again.
So that’s just the environment we’re in. We’ve spent all this money. We’ve taken rates as low as we can get them and we’re just hanging in there. Even recently we had the GDP for 2011 to 2014 revised down so that it turned out to be 2% a year. Of course the 2% is a function of the inflation rate. Say, if inflation was reported as 1% but is really 3%, then you had no growth because GDP is just a dollar number.
My own feeling is that inflation is way beyond what’s reported. If inflation really was 5%, and you said GDP growth was 2%, then the real growth is -3%.
So I’m not a believer that there is any economic recovery that’s sustainable. I always say we’re trying to get liftoff. But we don’t get liftoff because we haven’t finished the cleansing process yet.
I’ve never been a believer in the economic recovery that we’re supposedly in. I think that the powers-that-be are pulling out all the stops to try to hold it together. I go back to the NASDAQ break which I think should have caused a huge cascade of stock values to stay low for quite a while. And then of course the powers-that-be used whatever methods were available to them to try to stimulate things. Back in those days, it was “cash-for-clunkers,” the new homebuyer tax credits and of course the whole zero-interest-rate thing. Then we had TARP and TALF in ’07 and ‘08.
We had conservatorships of Fannie and Freddie, and AIG, which I’m sure nobody really understands. It’s all “try to keep it together.” I think we learned in ’07 and ’08, when Lehman went down, that the powers-that-be can’t allow a liquidation where a financial organization has to sell something, which unfortunately is what happened to Lehman and nearly took the whole system down.
So subsequent to that, we’ve never had a liquidation. Even, for example, in the Cypriot bank crisis, the Cypriot banks never had to sell anything because they just took from the depositors. It looks like the Greek situation that we have today; the Greek banks don’t have to sell anything because the ECB just comes in and supplies the Emergency Lending Authority. I think if you allowed the market to function as it should function, where values are determined by the market, we would see this sort of domino effect where the Greek banks would have to sell their loans off and then the Greek stock market would collapse, the bond market would collapse and then people [in countries] around them would start thinking, “Well, that could happen to me.”
