This Will Be The Decade Of Silver - Interview With Eric Sprott
Patrick MontesDeOca: Mr. Sprott, can you please give us the current situation in terms of price in the silver market? What you might see in the short term as it unfolds in the next six to twelve months, what is your forecast?
Eric Sprott: Sure, I take a longer term view than six to twelve months. I’ve been involved in silver for about probably almost ten years now and of course the price of silver has done wonderful things in that time period even though recently it has come under a lot of pressure. My thesis being that even though the last decade has been the decade of gold, this decade will be the decade of silver. I can only imagine that it will go back to its historical relationship to gold of 16 to one in term of price. And as an example of 16 to one, with gold at $1600 it would suggest that the silver price should be $100. And most of the data that I look at certainly as it pertains to day to day markets, and I don’t mean the Comex, we're not talking about that, we're talking about the physical market for silver, and we have data points that suggest that buying for silver by the public is almost on a ratio of dollars of silver being bought to dollars of gold being bought. We can see that the U.S. Mint’s data that comes out every month, and pretty much every day, so for example, the amount of silver coins being bought through the mint’s service - they sold 50 times the number of silver to gold coins. This month it’s actually running around 70 to one. This really means people are putting as many dollars into silver as they are into gold. But there is nowhere near the amount of silver to invest in as there is gold.
P: So do you attribute this correction we saw recently to the correction we saw in the beginning of April?
E: Sure, well, I think both corrections were orchestrated by people who are massively short silver. When the price went from 20 to 50 roughly, I mean, those shorts had lost about 20 billion dollars. If silver had broken through $50, things would have gone absolutely crazy. Like when gold went to 850, it doubled shortly thereafter, which would have created great stress on those people who were short. And unfortunately in the Comex market, which is mostly a paper market, those who have huge amounts of money can force the price down, and as you may have recalled Patrick, there was a Sunday night around 9:30 when the price went down $6.
P: And it’s usually over the weekend that this happens.
E: Exactly, when nobody was trading. And that particular day the Chinese market was closed and the UK market was going to be closed that day. And of course, everyone comes into work at the New York time and the price of silver is down $6, they already have the margin call. Then the CME raised margins 4 times in the next week which put the long holders of silver contracts under tremendous duress, so they had to sell them. So a lot of the short position has been covered here, I’m not saying there won’t be further raids. There was a raid recently where they recently knocked it down to $27, and that is what happens in the paper markets. Paper markets can trade up to a billion ounces a day, while we only produce 900 million ounces a year. And looking at the physical markets, which I spend most of my time looking at, I can identify something like a 380 million ounce change in supply and demand just in the past five years in a 900 million ounce market. I believe that sooner or later we are going to run into a shortage in physical silver and the physical silver price will then determine the Comex price.
P: I think a lot of people would like to know, potentially, how soon would you see this change taking place?
E: Well that is a very tough question to answer because there are forces at work every day, right, and you have to exhaust those forces or they have to have some reason to change their view on what’s their best interest in the paper markets. I’ve always imagined there, or hoped that some industrial user of silver will say “Oh, I can’t get the silver” and the word gets out that there is a physical shortage. Or the people just continue to buy at the rate they are buying, because you just can’t keep buying silver on a one to one ratio to gold and have the price be 50 to 1. That is mathematically impossible.
Read the full article here.
Eric Sprott: Sure, I take a longer term view than six to twelve months. I’ve been involved in silver for about probably almost ten years now and of course the price of silver has done wonderful things in that time period even though recently it has come under a lot of pressure. My thesis being that even though the last decade has been the decade of gold, this decade will be the decade of silver. I can only imagine that it will go back to its historical relationship to gold of 16 to one in term of price. And as an example of 16 to one, with gold at $1600 it would suggest that the silver price should be $100. And most of the data that I look at certainly as it pertains to day to day markets, and I don’t mean the Comex, we're not talking about that, we're talking about the physical market for silver, and we have data points that suggest that buying for silver by the public is almost on a ratio of dollars of silver being bought to dollars of gold being bought. We can see that the U.S. Mint’s data that comes out every month, and pretty much every day, so for example, the amount of silver coins being bought through the mint’s service - they sold 50 times the number of silver to gold coins. This month it’s actually running around 70 to one. This really means people are putting as many dollars into silver as they are into gold. But there is nowhere near the amount of silver to invest in as there is gold.
P: So do you attribute this correction we saw recently to the correction we saw in the beginning of April?
E: Sure, well, I think both corrections were orchestrated by people who are massively short silver. When the price went from 20 to 50 roughly, I mean, those shorts had lost about 20 billion dollars. If silver had broken through $50, things would have gone absolutely crazy. Like when gold went to 850, it doubled shortly thereafter, which would have created great stress on those people who were short. And unfortunately in the Comex market, which is mostly a paper market, those who have huge amounts of money can force the price down, and as you may have recalled Patrick, there was a Sunday night around 9:30 when the price went down $6.
P: And it’s usually over the weekend that this happens.
E: Exactly, when nobody was trading. And that particular day the Chinese market was closed and the UK market was going to be closed that day. And of course, everyone comes into work at the New York time and the price of silver is down $6, they already have the margin call. Then the CME raised margins 4 times in the next week which put the long holders of silver contracts under tremendous duress, so they had to sell them. So a lot of the short position has been covered here, I’m not saying there won’t be further raids. There was a raid recently where they recently knocked it down to $27, and that is what happens in the paper markets. Paper markets can trade up to a billion ounces a day, while we only produce 900 million ounces a year. And looking at the physical markets, which I spend most of my time looking at, I can identify something like a 380 million ounce change in supply and demand just in the past five years in a 900 million ounce market. I believe that sooner or later we are going to run into a shortage in physical silver and the physical silver price will then determine the Comex price.
P: I think a lot of people would like to know, potentially, how soon would you see this change taking place?
E: Well that is a very tough question to answer because there are forces at work every day, right, and you have to exhaust those forces or they have to have some reason to change their view on what’s their best interest in the paper markets. I’ve always imagined there, or hoped that some industrial user of silver will say “Oh, I can’t get the silver” and the word gets out that there is a physical shortage. Or the people just continue to buy at the rate they are buying, because you just can’t keep buying silver on a one to one ratio to gold and have the price be 50 to 1. That is mathematically impossible.
Read the full article here.
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