The Finance News Network recently interviewed commodity hedge fund guru Eric Sprott:
Lelde Smits: Hello, I’m Lelde Smits for Australia’s Finance News Network and joining me in Hong Kong is Eric Sprott, Chairman of Canadian-based asset manager, Sprott Inc. Eric, welcome back to the show and great to speak with you here at Mines & Money.
We all know you’re a big fan of precious metals. What do you believe are the biggest macro factors that will drive up their prices over the next five years?
Eric Sprott: Well it’s sort of the same factors that have been operative for a long time; one is that I think there’s a physical shortage of gold that’s been supplied by the western central banks surreptitiously. We now have the tail winds of printing of money, we have the further tail wind of bank runs; and we may get one now as we see what’s going on in Europe that we might experience another bank run. So those are the kind of key things that I watch right now.
Lelde Smits: So which of these global threats that you mention are most concerning to you?
Eric Sprott: Well, the biggest threat is we have way too much debt versus the productive engine that has to take care of the debt. And we seem to believe that you solve debt problem by issuing more debt; you know we’re going to solve the Cyprus problem by giving them $17 billion in more debt- it’s not going to solve any problem at all. The productive engine is not capable of servicing the debt.
Lelde Smits: Let’s get to your outlook now for gold and silver. When we last spoke at the end of 2011 you predicted gold would be north of $2000 (USD) a tonne by mid 2012 and it is yet to break through that barrier. How have you adjusted your forecasts since?
Eric Sprott: I have not changed my forecast. In fact I think, where’s the price of gold going to go, it’s going to be in the thousands somewhere - the multi-thousands in my mind. As I say we keep printing money, we have no economic growth, we have a banking crisis almost every week somewhere. And sooner or later people will figure out that gold is something they should own.
Lelde Smits: But Eric, could you put a timeframe on when we could expect the price of gold to break through that $2,000 (USD) barrier?
Eric Sprott: Well, you know the gold’s gone up, I think it’s compounded at 16% a year for 12 years. I see no reason why it wouldn’t continue to do that, and in fact there are more reasons for it to do it as we now have all developed countries printing money.
You know when you see Japan coming in saying, "We’re going to cause inflation," you could never imagined when we started in this gold business that we’d have those sort of tail winds behind us but that’s what people are doing so I think it will pick up the speed of appreciation over time here.
Lelde Smits: So Eric, how does your outlook for the price of gold compare to your forecasts for the price of silver?
Eric Sprott: Well, as you know I happen to believe that this is the decade for silver, and why do I say that? Because I see what people are doing with their money in terms of investing in silver, and silver used to trade at a 16:1 ratio to gold - it trades at a 55:1 ratio to gold, but I see lots of buying in the silver market vis-a-vis the gold market.
Silver’s a very, very small market and I think silver will triple the performance of gold this decade. And, we’re seeing part of it already, of course we did get up to $50 and then we faded again. But I think silver will re-assert itself - I’m an optimist for gold - but I think silver is the place to be.
Lelde Smits: Turning to investments and, generally speaking, if investors want to get a piece of the action they have the options of buying financial products linked to the metals, purchasing mining stocks or bullion. Eric, how much would you allocate to each asset class?
Eric Sprott: I’m a great believer in the physical, that’s the first thing, so I think everybody should have some physical metal. If you’re young and you’re into capital appreciation, which I think probably most of your viewers might be, I think that right here at these levels I think the stocks are way better value than the metals. And typically, they’ve out-performed the metals by at least 2-3 to 1. So if we’re correct in our thesis that selling gold is going to go higher here, the stocks are going to superbly out-perform the metals. And you know, if they’re risk tolerant I think that’s where they should put their money.