Is Eric Sprott Bailing on Silver?
The sales of the 1.6 million shares resulted in proceeds of $35 million. Sprott personally booked a gain of $6.4 million.
Since Sprott made the sales between April 18-25, the price of PSLV has fallen from $22 to about $18 that it is trading at today. Investors who bought at the top are now looking at losses of 18% and counting.
Sprott later commented on the asset sales when asked by the Globe and Mail, “We haven’t lost our enthusiasm for silver. Every dollar of money that was raised by selling shares of [the Trust] ... was reinvested in silver or silver equities,” Sprott said.
Whether or not Sprott was locking in profits or looking to invest in undervalued silver mining companies remains to be seen. There is no evidence that Sprott has ever been disingenuous about his fondness for silver and his recent statements that silver would hit $100 an ounce in the next few years.
At the PDAC conference Sprott said, "Historically silver has traded in a ratio to gold of 16:1. That ratio has not been effective in the last 20-30 years. The ratio today is 40:1 and I think it is going to 16:1 and in the next 3-5 years I could see silver going to $100 an ounce." However, there have been counter arguments to Sprott's gold/silver ratio, specifically that technological breakthroughs have had a massive impact on commodity prices over the last century.
Nonetheless, the fallout after the Sprott asset sales should show investors an important thing about the silver market.
Sprott is now a dominant player in the silver markets. He has the ability to "move" the silver market because his funds are large relative to the size of the silver markets. Sprott has $8.5 billion under management, and the silver market is in the billions. For example, the world's largest silver-backed ETF (SLV) only has $5.5 billion in assets. In other words, with Sprott's heavy concentration of his hedge fund capital in a small market, he has more influence on the silver price than any other fund manager or institution. Whenever he makes PSLV sales it can be expected that the silver market will respond.
All silver investors should keep a close eye on the 13-F filings of Sprott Asset Management.