Enquirica Research – Eric Sprott on Silver PricesEnquirica Reserch - October 2011
Eric Sprott on Silver Prices – 2011 Silver Summit Some highlights from hedge fund manager Eric Sprotts speech at the 2011 Silver Summit. Sprott of course created and is one of the largest investors in the Sprott physical silver fund that trades on the TSX so he has a significant personal stake in the outcome of the debate as to where silver prices are heading. • The US Mint sells approximately the same dollar amount of gold and silver coins, which means it sells 50 ounces of silver for every ounce of gold. • Ten times more silver than gold is produced each year, and the ratio in the earths crust is 15:1. This begs the question how the silver/gold ratio can be 50:1? Sprott expects a return to the historical norm of 15:1, which implies that silver will outperform gold. • The paper silver markets trade a billion ounces a day and the world only produces 900 million ounces a year. The amount available for settlement of these futures contracts is approximately 1.5 million ounces – very little compared to the amount of paper. • According to Sprott: o "On the physical side Im seeing only buyers." o "There are a lot more people who can afford a one-‐ounce silver coin than an ounce of gold." o "We tried to buy 15 million ounces of silver and had to wait three months -‐ and some of the silver we got was manufactured after we ordered. So theres not a lot of silver sitting on shelves waiting for people to buy it." o "Somewhere along the line some manufacturer will say I cant get the silver I want and the jigs up."
Counterparty risk of exposing savings to banks will increasingly drive people to prefer gold and silver to having money in a bank. Witness that up until very shortly before it was nationalized, Dexia was considered to be the best capitalized European bank and passed what was alleged to be a stringent “Stress Test”. Counterparty risk is not theoretical any longer. • Sprott believes that silver is still underrepresented in institutional portfolios. According to him "You go to some of the biggest names who own gold and ask them about silver and a lot of them havent even looked at it."
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