In one of his best and most shocking interviews ever, Eric discusses the latest gold and silver raid, his take on the platinum & palladium markets, the Bundesbank’s recent gold repatriation request and the correlation with massive physical gold buying in Asia, and his view on how the endgame of the Western financial/ debt crisis will play out.
Sprott stated that the Treasury Department’s 2012 GAAP budget deficit report was an astonishing $6.9 Trillion, and this has not been reported in 1 single major news outlet! He also stated that the US government may be exporting German gold from the NY Fed to China, and that despite their recent apparent success, he expects that one day soon the cartel will be brought to their knees simply by traders standing for delivery of physical metal.
Eric Sprott’s full MUST LISTEN audio interview with The Doc is below:
When asked whether the current
gold and silver correction is the beginning of a 2008 like collapse, or
as Jim Sinclair has suggested, the last major shake-out prior to major
bull moves for gold and silver, Sprott responded:
It’s
getting chaotic out there in the financial world. We have a worldwide
economic recession, we have governments which have hugely over borrowed,
and we have so much printing of money it’s surreal.Interestingly, this whole time the price of gold and silver has gown down, which I find incredibly unusual because all of the data that you and I and other people in the precious metals business look to on a physical basis is so strong. I’ve always surmised that because it’s so chaotic, and because Paul Volcker stated back in 1980 that the mistake we made was not getting control of the gold price (of course the gold price at that time had gone from $35 in 1971 to $850 a mere 9 years later) and we ended up with double digit inflation. I certainly believe that precious metals are the tell on the irresponsibility of the central planners.
And I think that the central planners would know that these are massively unusual and irresponsible, but it’s the only thing they can do. They have to keep interest rates down because any uptick and all governments will face almost immediate bankruptcy because they wouldn’t be able to afford the interest.
We’re living in very unusual times, we see incredible volumes on the paper markets of silver and gold, which obviously bear no relationship with what’s going on in the real world. When you trade 1 year’s silver production in a day- matter of fact I think we traded one year’s worth of gold production yesterday, which is absolutely ridiculous!
They just trade the paper like it’s the real thing but as you and your readers know, it’s not the real thing, and there’s a whole other market out there which ultimately will determine the price.
The Doc asked Eric his thoughts on the massive physical silver demand in 2013:
As we all know there is the paper market and the physical market. As you’ve pointed out the demand for coins has been stunning. I think the important thing to point out for a silver owner is to look at the US Mint’s statistics and to look at how much silver is sold and how much gold is sold. For 2011, 12, and so far in 13, the US Mint sells 50 times as much silver as they sell gold.
We know that the amount of silver produced in the world is only about 11 times greater than the amount of gold each year. We also know that there is 150 x more dollars of gold in inventory than there are dollars of silver in inventory.
So when people are buying at a rate of 50 to 1 (and I can also use the example of our gold and silver trusts, in the last traunche we sold 50 times more silver than gold)- these are people choosing to buy silver- we don’t force people to buy our trust, no one forces them to buy from the Mint, but that’s the relationship that they’re buying gold and silver at!
When I talk to bullion dealers, my favorite question is what percentage of your business is in gold and what percentage is in silver in dollars, and almost to a man, the answer is 50/50!
So how long can people continue to buy 50 times more silver than gold? Because for investment purposes it’s really only available on a 3 to 1 basis, because most silver is used for industrial uses, whereas most gold is used for investment.
The Doc asked silver how tight the physical silver market is currently, and if he might soon be able to achieve his goal of not being able to source the last bar of silver for an offering:
That’s always one of my dreams! Some of the things that those in the precious metals market might hope for: 1. Money printing- I mean who would have imagined when they got involved in 2000 that we would see money printing which began in 2008/2009?
And then we see bank runs, which are two of the most wonderful things for precious metals owners, because those are reasons you own precious metals, and then you see the physical demand coming through, these are the perfect things that we want to see. As long as these continue we’re going to be ok. Someday it will break, I don’t know what will break it to be honest- is it going to be a COMEX default, is it going to be an industrial users that can’t get enough silver that produces iPhones or the S3′s or something like that- I think SD had the article that one of the car maker’s was stocking silver in Switzerland – so I don’t know exactly how tight it is, I have the same anecdotal evidence you have, and the most obvious one is what you just mentioned- the US Mint is running out of blanks.
It has to be tight, we know that the COMEX bears no correlation to what’s going on in the real world, but seemingly (for now) that determines the price. Someday, the physical demand (which it probably already has) exceeds physical supply, and it’s only a matter of breaking the backs of the short sellers on the COMEX and the LBMA who double, triple, quintuple counting of how much gold people think they own- I dont know when that’s going to happen, all I know is that if I had a choice of to buy bonds, to buy stocks, or to own precious metals, I know exactly what I’d do because over time we know we’re going to win the race.
The Doc also asked Eric about the Treasury Department releasing the results of their 3 year audit of the Treasury’s 34,021 gold bars held at the NY Fed- particularly with the timing of the release only a month after the Bundesbank requested the repatriation of Germany’s gold, and whether the official denial by the Treasury department of any purity issues with it’s gold stored at the NY Fed in fact confirms our worst fears:
Well Doc, I read the so-called audit report. It really said they audited the schedule of holdings- which I don’t even know what that means, the schedule of holdings. What the NY Fed holds is a very small fraction of the total gold theoretically that’s owned by the US government, and in fact the gold held at the Fed might be German gold! The Germans might be surprised to find out there’s only 350 tons in the NY Fed and it’s all supposed to be theirs!
It was a sham, and it was another example of those who are attempting to mislead us as to what is going on, and there have been so many examples of things that are just not right and are totally misreported.
Let me give you the biggest example of that. On Jan 17th, the Dept of Treasury released their GAAP budget deficit , and it was $6.9 TRILLION. That’s the change in present value of true obligations in ONE YEAR plus the cash deficit- total deficit $6.9 TRILLION! This is in a $16 trillion economy where politicians fight over $100 billion in spending cuts when the deficit is $6.9 T! What I find most interesting about that number? You will not see it reported ANYWHERE in the public press!
You would think that would be something that would be deserving of some comment, but if you Google GAAP budget deficit 2012 you will not find it in any public news release, even though it was released by the Department of the Treasury. We’re just ignoring the biggest elephant in the room here, and that’s the way they want to work it- more disinformation.
Sprott also discussed the massive physical gold buying in Asia:
Every time I look at the gold data, you see more and more physical buying of gold all the time. If I annualized the latest imports into China from Hong Kong in their latest reported number, and if annualized the latest India purchases, my goodness the shortage we would have in physical gold- I calculated 2,300 tons per year! That shortage would be substantially higher. And I might add that I don’t get to see data on what people who buy bars- we don’t get to see that data!
We don’t know what Russian billionaires have done. We don’t know what the Saudi Shieks have done. For example, when the University of Texas’ Teachers endowment bought $900 million in gold- that’s not an item where we see the transaction in the public domain, so I suspect the shortage is well above the number I calculated, because I can only add up the public data.
As you know the gold market is only a 4,000 ton market, and we’ve seen this change of 2,300 tons per year- where is the gold coming from? How does China import 95 net tons of gold in a month when the mines ex-China only produce about 180? They bought 50% of the world’s gold! Then I turn around and read that India bought 100 tons, over 50% of the world’s gold per month!
The US gov’t has to be selling! We saw the Treasury customs report for the month of December where the US gov’t was an exporter of $4 billion worth of gold! (They call it non-monetary gold by the way)…which is 2.5 million ounces! In a month! The US only produces 8.8 million ounces in a year, where do you come up with 2.5 million ounces?
Most of the gold produced in the US is consumed in the US! There’s not much left over for exports.
In the last year, the US gov’t has exported 250 tons of gold! Where does 250 tons of gold come from? There’s no excess gold available other than what might have been at the central bank! It might have been the German gold, might have been the Austrian gold, might have been the Dutch gold- all of my analysis tells me that’s whats happening!
The Western Central banks – the guys trying to solve the problem- have been huge, non-transparent sellers of gold.
The Doc also asked Sprott how much gold China might have accumulated since it’s last official update of 1,054 tons in 2009:
I don’t think they’re going to update the statistics. If you or I were running the financial affairs of China, we would want to be selling Treasuries and buying gold, but we don’t want people to know that we’re selling Treasuries and buying gold. Simply because they want to buy as much gold as cheaply as they can. To me it’s obviously a godsend for the Chinese that the price is where it is. You mentioned they bought 900 tons of gold last year, I would venture to say that 3 years ago, they probably didn’t buy 100 tons of gold. So you have an 800 ton buyer come into a 4,000 ton market, and the price goes down. It’s an impossibility. They took 25% of the market! I always like to say what if the Chinese bought 25% more of the oil market or 25% more of the wheat market? Wouldn’t people say there might be a problem, or how could you do that, is it even physically possible?
The data we get from China is only from Hong Kong! We don’t even know how much gold is going from Switzerland or Canada into Beijing- we only know what goes from Hong Kong into China, and I know that there’s lots of gold coming into China that doesn’t go through Hong Kong!
Who knows what China’s reserves are, I don’t think we’ll find out until there’s some kind of collapse of the system or they want to make their move in terms of backing the Yuan with gold, and that could be some time soon. I’m sure they are happy to sit there and accumulate gold at these prices, and we know that it must be coming from the Western Central banks!
With Sprott recently launching Palladium and Platinum trusts, The Doc asked Eric whether he still believed silver to be the investment of the decade:
I do, but I must say, that I am not a student of the platinum and palladium markets. I don’t spend multi hours/ day looking at that. I leave Rick Rule and other people in our office in Toronto in charge of understanding that market and I think they have a good grasp of it.
I don’t get into the minutia, but all the data we see on a macro basis- the problems in South Africa, the purchasing of platinum and palladium for investment purposes are all moving up here. I’m actually a little stunned that the price hasn’t moved more than it has because in my mind, we have an absolute shortage of the two commodities! There’s no telling where the price could go when somebody wants that last bar of platinum or palladium and they’re not going to get it. I think the outlook for both metals is great, but it certainly doesn’t diminish any of my fervor towards the silver market. As a precious metal, I think silver is more precious than platinum or palladium and will be the investment of the decade.
Sprott also stated that silver should be trading at $100 currently!
With a debt of $60 trillion and a GDP of $16 trillion, bonds will not be paid back. You have to own physical things- silver and gold being the primary ones. Gold is by far the bigger market and has more money go into it, but I think silver has a chance of massively outperform gold, simply because of those ratios we talked about. It’s only available in a 9 to 1 ratio, the inventories are a ratio of 150 times more of gold in terms of silver, and yet we see people spending the same amounts of money on gold and silver.
Silver should go back to that 16 to 1 ratio, so gold at $1600 should be at $100. I certainly imagine that gold goes much, much higher here. If for example it went to $3,200, the price of silver would be $200.
That’s the sort of move I expect, but you know you can’t pick a top on these things, and we have so much money printing, so fast, that it’s impossible to calculate where it should be because we don’t know in the future what these government’s will do.
All we know is that the price should be up massively. Anyone who’s been a student of the market sees these ridiculous trades, but some day these guys will be brought to their knees by people just taking delivery, and I hope it happens sooner rather than later.
When you look at for example the February month, every day so far we keep getting new people nominating for delivery! I think yesterday was another 300,000 ounces of silver. This in a contract that’s a very minor contract, but people are going in and taking physical delivery. Sooner or later the problem is going to manifest itself, and who knows that happens that day. I always worry Doc that I’ll end up being right one day, and they’ll just stop the market! If they stop trading the stocks, and they say we’re going to stop trading in silver and gold, I mean we’ll be absolutely correct, but they may take the market function away, in terms of the market we’re supposed to trade, but certainly in the black market, gold and silver will be worth as much as they have been in history and will buy you what you need.
Doc: You wrote last year Eric that the recovery had no clothes, and that call was spot on. There was a report last week that the Fed has purchased more US debt in 2013 than the Treasury has issued! How do you see this all ending for the US? Will we simply end up with 2 lost decades like the Japanese, will we actually see a hyperinflation of the US dollar, will China one day announce official gold reserves of 15,000 tons and introduce a new gold backed renminbe? How do you see this whole financial crisis ending?
As you said at the outset, will we lose two decades? I might argue we’ve already lost one decade!
If you ask 70% of the population are they better off, the answer will be no, and it’s probably a lot higher than 70%. Here in 2013 we have a 2% tax increase. We have a possible sequestration. You read the internal communications that leaked from WalMart that their February sales so far are a total disaster.
We’re printing all this money, and we’re spending all this money, and where do we stand today? We stand in almost a world-wide recession after all those moves! What more can we do to turn the economy around? It’s just not turning around!
Yes, I suggested that the recovery has no clothes, because you could see that it was temp earnings that was fueling the optimism early in 2012, those things all faded towards the end of the year, we ended up with a negative print in GDP. We’re going to start this year with a negative print in GDP, and I wrote another article last year saying Weak begets weakness.
For example, if somebody lays off 5,000 employees, it’s not just those 5,000 employees that get impacted, it’s the people who are relying on those people to buy goods from them that also get impacted.
There’s only one way that weakness won’t beget weakness- you have to have outside measures come in in terms of fiscal policy or monetary policy. In terms of fiscal policy we have no room for fiscal policy initiates anywhere. Here we are arguing about sequestration and how much spending we’re going to cut. There’s no fiscal stimulus.
Now let’s move on to financial stimulus. We have 0% interest rates, and we’re buying $85 billion of our own bonds a month. How much further can we go here? There’s nothing left to try! The printing of money has been a total failure other than making things look calm. I can assure you it’s not calm, but it looks calm, and it will look calm until one day we all figure out that we’re just going down this slippery path of greater debt, greater money printing, and people will figure out that I don’t want to own these bonds because I know exactly how this thing’s going to end.
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