nice8 Jul 2013 19:25
Eric Sprott founded Sprott Asset Management in 2001, and is one of the gurus of gold (and more especially silver). This article appeared the other day summarising Sprott’s thoughts from a broadcast which went out on June 25th. It is an extreme view and clearly Sprott talks his own book but it is interesting none the less.
“It was my feeling that during the first quarter of the year, up until April 15th, there were many signs that there was going to be a shortage of gold. We wrote an article about a year ago, titled ‘Do Western Central Banks have any gold left?’ where we quantified that there’s been probably an extra 2,300 tonnes of demand every year since 2000, and yet gold production has not gone up in that timeframe.”
But instead of a demand squeeze, driving prices higher, gold has declined from nearly $1,700 at the start of the year to lows of around $1,200 now. How could the price decline if there truly was a shortage?
Mr. Sprott continues: “I put the slam down to the people who are short gold – it’s been very well-documented that certain parties had very large short positions in gold. Shorters who were expected to deliver gold that was not deliverable could have created this downdraft in order to cause gold to come into the market.”
“But it totally backfired,” says Mr. Sprott. The sudden drop in price led to extreme levels of demand for physical metal even as “paper gold” sold off heavily, says Mr. Sprott, citing record demand for physical metal, particularly out of India and China.
“I would venture to say, at the kind of rates of consumption we have now, we might have a 4,000-ton shortage in a 4000-ton market.” So how could the market bridge the gap?
Mr. Sprott continues: “I suspect that the Western Central Banks have surreptitiously been supplying the market. We’ve seen COMEX inventories plunge from 11 million ounces to around 7.6 million ounces in the last few months, and it seems to me that people are finally taking their gold out of the system.”
Mr. Sprott says it’s the paper markets that have determined the pricing of gold – and these markets are often disconnected from the physical metal. “There’s been a lot written about how a very small percentage of paper gold – for instance in the COMEX – is delivered physically. These paper products have determined the price.”
“I’m a huge believer that you should own physical,” says Mr. Sprott. “I don’t like the fact that someone with a lot of money can affect the price in the short term with money when I see the fundamentals for physical gold as very positive.”
Will people who own gold now get the “last laugh?”
“I think they will,” says Mr. Sprott, reminding that even after the gold sell-off this year, gold is up nearly 500% since the beginning of the la
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