Eric Sprott says it's
time for people to take matters into their own hands and push further
and further into precious metals equities as well as physical gold and
silver. Gold Report interview.
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Posted: Tuesday , 28 Aug 2012
TORONTO (The Gold Report) -
The Gold Report: You've stated before that the price of gold should be above $3,200/ounce (oz) and the price of silver above $200/oz but market manipulation keeps both metals artificially low. Who is manipulating it?
Eric Sprott: 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.
TGR: Are you saying that the gold price manipulation is a new phenomenon?
ES: In the 1960s, the London Gold Pool was trying to suppress the price of gold but lost that battle, and the price rocketed up. My own analysis of the physical supply and demand for gold suggests a dramatic increase in demand over the last 12 years-a 2,500 ton net change at a minimum.
This is in the 4,000 ton/year gold market, which hasn't increased in the past 12 years. The supply has basically been static. Yet we have exchange traded funds and central banks buying. You have to ask yourself where all the gold's coming from with all these new sources of demand, because mine supply over that period is negligible.
I can only conclude that acting in concert, the G6 central banks are supplying that gold from their reserves by leasing the central bank gold into the gold market. Of course, they pretend they still own it, because the item on their balance sheet is now called "gold and gold receivables." The receivable is what they've loaned to a bullion bank, but it's actually been sold into the market and consumed and won't be coming back again. To buy it back physically would drive the price absolutely crazy.
That's why I think the price of gold should be considerably higher than it is, and why I believe, much as anyone in the Gold Anti-Trust Action (GATA) organization, that there's been continual pressure from the central banks in cooperation with bullion banks to keep the price down.
TGR: Does the fact that the silver market is so much smaller than the gold market make it easier to manipulate?
ES: I think it's more easily manipulated; it doesn't take as many dollars in the paper silver market because it doesn't trade as many dollars as the gold market would. For example, when silver hit $49.50/oz in the Q2/11, on some days silver traded a billion ounces of paper a day where the mine supply on a yearly basis is 900 million ounces (Moz) and probably the amount available for investment is about 200 Moz.
TGR: Those numbers don't add up.
ES: No, they don't. How can we trade a billion ounces of paper silver on a single day with 200 Moz available for investment for a whole year? I always ask people to think about what the seller was thinking. I'm going to sell a billion ounces of silver today and one-fifth of that is available for investment on a yearly basis. As a result, the paper was determining the price of the physical commodity.
TGR: You recently raised another $200 million (M) for the Sprott Physical Silver Trust with the goal of buying 7 Moz of silver.
ES: We've had a number of issues in that trust. We raised $250M in July, including over-allotment, and $350M back in Q1/12.
TGR: Could that affect supply and demand and therefore manipulate the market?
ES: The silver we buy theoretically stays off the market, so it does have some impact-but had we not bought it someone might have tried to move the price a little lower. Actually, I think the silver price exhibited more stability than it would have otherwise experienced.
TGR: You also operate Sprott Money, a service for buying physical gold and silver. Is that because you view precious metals as a store of value and therefore a hedge against inflation?
ES: 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. Read more>>Fear the financial system and invest in gold and silver - Sprott
