'Mania. Manipulation. MELTDOWN' by Eric Sprott, Sprott Asset Management at Mines and Money Hong Kong 2013

'Mania. Manipulation. MELTDOWN' by Eric Sprott, Sprott Asset Management at Mines and Money Hong Kong 2013






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  • 1) http://www.latimes.com/business/money/la-fi-mo-home-loans-20120917,0,6108718.story2) http://goldswitzerland.com/general-commentary/
  • http://www.iea.org.uk/blog/true-level-of-uk-government-debt-exceeds-%C2%A35-trillion
  • http://www.ibtimes.com/central-bank-gold-demand-still-track-hit-highest-level-1964-despite-q3-dip-881004

'Mania. Manipulation. MELTDOWN' by Eric Sprott, Sprott Asset Management at Mines and Money Hong Kong 2013 'Mania. Manipulation. MELTDOWN' by Eric Sprott, Sprott Asset Management at Mines and Money Hong Kong 2013 Presentation Transcript

  • Presented at:www.minesandmoney.com/hongkong 1
  • Mania. Manipulation. Meltdown. Eric Sprott, FCA Chief Executive Officer Chief Investment Officer Senior Portfolio Manager March 2013 2
  • DisclaimerForward-Looking StatementsThis presentation contains forward-looking statements which reflect the current expectations of management regarding futuregrowth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as “may”,“would”, “could”, “will”, “anticipate”, “believe”, “plan”, “expect”, “intend”, “estimate”, and similar expressions have been used toidentify these forward-looking statements. These statements reflect management’s current beliefs with respect to future eventsand are based on information currently available to management. Forward-looking statements involve significant known andunknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to bematerially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying theforward-looking statements prove incorrect, actual results, performance or achievements could vary materially from thoseexpressed or implied by the forward-looking statements contained in this document. These factors should be consideredcarefully and undue reliance should not be placed on these forward-looking statements. Although the forward-lookingstatements contained in this document are based upon what management currently believes to be reasonable assumptions,there is no assurance that actual results, performance or achievements will be consistent with these forward-looking statements.These forward-looking statements are made as of the date of this presentation and Sprott does not assume any obligation toupdate or revise.Views expressed regarding a particular company, security, industry or market sector should not be considered an indication oftrading intent of any investment funds managed by Sprott Asset Management LP. Any reference to a particular company is forillustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should itbe considered as an indication of how the portfolio of any investment fund managed by Sprott Asset Management LP is or willbe invested.The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any otherjurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offeror solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whethersecurities of the Funds may be lawfully sold in their jurisdiction. 3
  • The Big Picture 4
  • Official National Debts Continue to Rise Global Debt to GDP Ratios Country % Debt to GDP USA 107.2% Germany 82.0% Japan 208.2% France 86.5% Canada 83.5% United Kingdom 86.8%Mark Carney: The global Minsky moment has arrived. Debt tolerancehas decisively turned. The initially well-founded optimism that launchedthe decades-long credit boom has given way to a belated pessimismthat seeks to reverse it. Source: Bank of Canada, Dec 2011 5
  • However, True Liabilities are Much Larger $38.5 Trillion Present Value of Unfunded Liabilities Rising from Social Insurance Costs as of 2012 using GAAP Accounting Source: Department of Treasury, 2012 Annual Report 6
  • America’s Debt Off-Balance Sheet Liabilities $38.5T U.S. National Debt $16.6T Expected Value of US Debt and Liabilities $55.1T U.S. GDP $15.1T (U.S. Debt + Liabilities)/U.S. GDP ~365%Source: World Bank, Department of Treasury 7
  • Similarly for the UK…. Category Value of Liability (£ bn) • Public Service Pensions 1408 • Gilt Edged Securities 804 • Provisions 105 • Other Liabilities 379 • Current State Pensions 1120 • Future State Pensions 1211 • Future Pensions 467 Total 5494 (392% of GDP) Source: Institute of Economic Affairs Blog, October 2011The True Extent of Government Liabilities is Widely Underreported 8
  • Consumers Remain Burdened Over 47M Americans are Living off Food Stamps 15% of the entire American Population Depends on Food StampsSource: Blytic 2% Increase in Payroll Tax Gasoline Prices Remain Stubbornly High 9
  • Precious Metals Review 10
  • Annual Mine Production Has Remained Flat Annual Global Gold ProductionAnnual Mine Production in Metric Tonnes 2,500 2,000 1,500 1,000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E Source: UBS, Sprott Asset Management LP 11
  • Non G7 Central Banks Continue to Purchase Gold Central banks continued to purchase gold in the fourth quarter at near-record pace, driven by emerging market central banks looking to diversify away from traditional reserve. Gold reserves at central Official central bank banks increased by gold demand topped 145T 500T in 2012. during Q4 2012Source: World Gold Council 12
  • Chinese Gold Imports Remain High Hong Kong Gold Exports To China (tonnes)140 2011 2012120 Gross: 428 tonnes Gross: 832 tonnes Net: 380 tonnes Net: 557 tonnes10080604020 - Gross Exports Net Exports(20) Dec-2009 Apr-2010 Aug-2010 Dec-2010 Apr-2011 Aug-2011 Dec-2011 Apr-2012 Aug-2012 Dec-2012Source: Censtad China Has Imported almost 560T of Gold Over the Past 12 Months 13
  • Gold’s Changing Fundamentals Annualized Change 2000 2012E in Demand Mine Supply Ex. China and Russia 2,294T 2,070T 224T Reported Central Bank Supply/ Demand for Gold Bullion -400T 600T 1,000T US & Canadian Mint Sales of Gold Coins 9T 45T 36T Cumulative ETF Holdings (First major ETF Launched in Nov. 2004) 0T 2,600T 325T Chinese Gold Imports 0T 550T 550T Indian Consumption Measured Through Gold Imports 535T 700T 165T Industrial Consumption 350T 460T 110T 2,410TNumbers quoted in metric tonnesSource: US Mint, Royal Canadian Mint, World Gold Council, Sprott Estimates Numbers do not include physical gold purchased privately by Arab Sheiks, Russian Billionaires and Hedge Funds 14
  • Do the Western Central Banks Have Any Gold?Our analysis of the physical gold market showsthat central banks have most likely been amassive unreported supplier of physical gold,and strongly implies that their gold reserves arenegligible today. Source: Markets at a Glance, September 2012, Sprott Research 15 15
  • Do the Western Central Banks Have Any Gold? Entity Tonnes Held Listed As UK Government 310T Gold (including gold swapped or on loan) US Government 8,133T Gold (including gold deposits and, if appropriate, gold swapped) ECB 10,285T Gold (including gold deposits and gold swapped) Bank of Japan 765T Gold Switzerland 1,040T Gold Holdings and Claims from Gold TransactionsSource: Sprott Markets at a Glance, September 2012 16
  • The Smoking Gun On a Net Basis, the U.S. Has Exported 2,400T of Gold in the Past 10 Years 17
  • Silver:Investment of the Decade 18
  • The Price Ratio Argument Historical Silver-to-Gold Ratio: 16:1 Geological In Situ Silver-to-Gold Ratio: 17.5:1 Current Silver-to-Gold Ratio: 55:1 Dollars traded in GLD:SLV for Past 12 mths: 3.2:1 Ratio of Silver-to-Gold Mined Annually: 9.4:1 Implied silver price if silver reverted $100 back to 16:1 ratio at $1,600 gold:Source: Bloomberg, Sprott Research 1919
  • Investable Ratio Analysis Comparison of Key Gold-to-Silver Ratios Key Takeaways (Ratios in Dollar Terms) Gold bars and coins in existence (1) ~2.2Bn ounces  The value of all gold bars and coins in existence is ~$3.8T at current prices Silver bars and coins in existence (1) ~1.9Bn ounces  The value of all silver bars and coins in Value of gold bars and coins in existence is ~$56B at current prices existence to silver bars and coins in 68:1  Supply / Inventory of investable gold is existence (1) significantly higher than the supply of investable silver… Market value of SPDR Gold Trust to 6.6:1 iShares Silver Trust (2)  …but investors are choosing to put disproportionately more money to work Dollars of U.S. Mint silver: gold coin 1.2:1 in silver than in gold… sales (3) Money Raised for PSLV/PHYS since  …and the disparity is even greater in PSLV IPO 1.1:1 physical coin sales Gold Money 1:1 Royal Canadian Mint 1.5:1(1) Gold and silver data according to the CPM Group 2010 Gold Yearbook and CPM Group 2011 Silver Yearbook, respectively.(2) Ratio of market value of GLD to SLV(3) 2012 US Mint Coin Sales sourced from http://www.usmint.gov/ 2020
  • Silver Gaining Momentum Gold and Silver Sales in Ounces SILVER GOLD SILVER: GOLD 2008 19,583,500 860,500 23x 2009 28,766,500 1,435,000 20x 2010 34,662,500 1,220,500 28x 2011 39,868,500 1,000,000 40x 2012 33,742,000 744,000 45xSource: US Mint (www.usmint.gov) ETF Trading Ratios GLD:SLV ZKB Gold: ZKB Silver 2009 10.39 4.67 2010 5.87 2.52 2011 1.84 1.56 2012 3.23 2.53Source: Bloomberg PHYS vs PSLV 2121
  • Current Markets Overview How long can investors continue to buy silver at the current ratios when the availability for investment is only 3:1? We believe this is one of those times when smart investors will be well rewarded to “Follow the money.” Source: Sprott Markets At A Glance, December 2012 “When I talk to the traders in the rooms selling gold bullion and coins (sic) when gold had dropped, they said it was like a madhouse, it was insane. People were buying more coins, more physical gold during the drop in gold because it represents a buying opportunity.” Source: Blanchard Online, Feb 2013 2222
  • Not All Bullion Products Are Created EqualSprott Physical Sprott Physical Sprott PhysicalGold Trust Silver Trust Platinum & Palladium TrustNYSE Arca: PHYS NYSE Arca: PSLV NYSE Arca: SPPPTSX: PHY.U TSX: PHS.U TSX: PPT.U 23 23
  • New Paradigm for Precious Metal Miners Focusing on Shareholder Value Creation Returning Cash to Shareholders Through Dividends  Pan American Silver  Barrick Corp  GoldCorp  Newmont Shelving High-Cost Projects 24
  • Concluding ThoughtsThe end phase of “Ponzi” finance would appear when additional creditwould be required just to cover increasingly burdensome interestpayments, with accelerating inflation the end result. -Bill Gross, Feb 2013An unknowable tipping point looms over the horizon. When we reachit, outsiders and U.S. citizens alike will become suspicious of ourcreditworthiness, causing interest rates to rise and the dollar toplummet. Holders of greenbacks will rush to spend their money whileit still has some value, causing the prices of goods and stores of value(like gold) to surge. - Seth Klarman, Feb 2013 Precious Metals Will Continue Outperforming Other Assets Classes 25
  • The Great Wealth Redistribution 26
  • HUI Gold Index OutperformanceSource: Bloomberg 27
  • Gold: The Ultimate CurrencySource: Bloomberg 28
  • Q&A 29
  • Contact InformationSprott Asset Management LPRoyal Bank Plaza, South Tower200 Bay StreetSuite 2700Toronto, ON M5J 2J1T: 416 943 6707Toll Free: 1 866 299 9906F: 416 362 4928Email: info@sprott.comWeb: www.sprott.comFollow us on Twitter @Sprott 30
  • Save the Date for Mines and Money Hong Kong 2014 March 24-28, 2014 - Hong Kong Convention & Exhibition CentreRegister your Interest at:www.minesandmoney.com/hongkong 31