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Precious Metals Guru Eric Sprott - Emerging Market Weakness and a Gold Shortage in 2014

February 03, 2014 | About:

The following interview is from the Sprott Money Weekly Wrap-up, recorded on January 24, 2013, and edited for clarity. In this week’s round-up, Geoffrey Rutherford from Sprott Money Ltd. interviews Sprott Inc. Chairman Eric Sprott.

How are you doing today, Eric?

I’m doing well; we’ve had a pretty good week here so far. Lots of things are going on in precious metals.

Seems to be; so let’s get started with it. First let’s talk about the decline of the stock market, Eric. What are your thoughts on that?

Sure. Well, there’s been a lot of pressure in emerging markets here on both the currencies and the stock markets. I think it’s a fear of sort of unwinding or having the taper take place. So we’ve had big devaluations in Argentina, and currencies such as the Rand, Thai baht, many emerging countries – their currencies – are very weak here. We can talk about devaluations here. Every time I see the word “devaluation,” I think, well, obviously people could have protected themselves by owning precious metals in those particular countries. So we’ve had a lot of difficulty on the emerging markets side, which I think will spill over into the developed markets. We’ve seen a lot of pressure on European equities, on US equities. My own conclusion is that there is very little recovery going on in any country. The ‘props’ of too much debt are almost insurmountable. The consumer’s tapped out, and I think that they are finally realizing that these continued promises of economic recovery are not going to happen.

That being said, Eric, do you think this is a long-term effect, or do you think this is something that can change in the future from the trends we’re seeing now?

Well it’s going to have a long-term effect because the policies – the financial policies – are basically insane with the zero interest rate and printing money. I think people are seeing now that employment is not improving, that the amount of people on support of governments around the world is on the rise all the time. The minute central banks don’t buy as many bonds the rates will go back up. We’ve already seen, for example, that housing’s been weak and auto sales have been weak in the US, because rates have risen a lot here. It’s slowing the economy down and I think we’re going to see very poor economic numbers, we’ll see lot of earnings reports where people aren’t hitting their sales numbers – whether it’s IBM or McDonalds. It’s going to be very difficult to sell in economies that are weak.

We talked about gold manipulation last week, Eric. From that perspective, if gold manipulation were exposed, how would it affect the market?

We’re seeing the COMEX decline, and the ETFs being depleted. If it wasn’t for the impeding of India, the demand for gold would be well in excess of supply. We’ve seen continually strong buying in China. There’s some talk that India might relax their import rule, which would bring them back into the market. The world probably consumes 400 tons of gold a month and the mines produce around 200 tons a month. So I think the market has been supplied by the ETFs and the central banks but I’ve always argued that the central banks had very little gold. Interestingly this week it was revealed that the US only had delivered 5 percent of their gold to Germany for the 300 tons they’re hoping to get back over 7 years. I think it really tells out that they don’t have the gold.

Of course, we’ve seen some very interesting developments in gold and silver markets. The gold looks like it’s broken a down-trend here. I suspect we’ll have a very quick rise. People who are short paper gold have to revert themselves and of course we have the requests for COMEX deliveries which probably won’t be met. We will find out if there’s a physical shortage of gold.

I’ve always encouraged people to own precious metals. In Canada, for example, we’ve had a 10 percent decline in our currency. Someone who owns gold instead of Canadian dollars is benefitting from the currency going down. It’s been a logical place to be, which I know seems lost on the paper markets. I think the data in the markets supports a continued, quick rise for precious metals as we progress through 2014.   

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