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Sprott's Views on Silver - October 2011


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Sprott's Views on Silver - October 2011

  1. 1.                    Enquirica Research – Eric Sprott on Silver PricesEnquirica Reserch - October 2011
  2. 2.                     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."      
  3. 3.                        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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