19 November 2012

Eric Sprott on the Fundamentals for Gold - Physical and Paper Markets

Here are two recent interviews with Eric Sprott. The first one is mostly about gold, and also references the interview from Nov 12 on Bloomberg TV which is shown as the second video.

I like both interviews quite well. In particular I thought Eric Sprott was very articulate and on target with the things he said about the financial system in the latter part of the second interview. I would take issue with a few things he said in the first interview about the deficit, specifically with regard to Social Security, but that is beside the point, which is his analysis of the gold market from the supply and demand perspective.

His observations on gold are invaluable, but largely wasted on Bloomberg's two reporters. They just did not want to hear it. Bloomberg television has become an extended infomercial for Wall Street in the past few years, and that is a great disappointment.

I would have liked to see them ask Eric about the underperformance of his bullion funds relative to the bullion market, and what he thinks is at work there, and what he might be considering to do to reassure investors that his own vehicles will provide a return commensurate with the price increases in bullion.

There is little doubt that central banks have been leasing gold to the bullion banks, and that gold has been subsequently sold into the market. How much is another question. I also think it is very likely that the leverage and claim on physical gold and silver has increased dramatically, as some say to 100 to 1 on the LBMA which is the largest clearing market for physical bullion in the world.

There is a gap in the market. It is being hidden by non-transparent dealings by the banks and the exchanges. At some point that gap will correct, and it may come together with the force of a thunderclap.

Here is the Bloomberg interview with Eric Sprott.

Nov. 12 (Bloomberg) -- Eric Sprott, chief executive officer of Sprott Asset Management, talks about investment strategy and the performance outlook for gold. Sprott speaks with Erik Schatzker and Scarlet Fu on Bloomberg Television's "Market Makers."