Physical Silver Is The Investment Of The Decade

We just attended a webinar organized by Eric Sprott and his respected partners John Embry and Rick Rule. These are well-known names within the precious metals community, partly because of their huge success but also because of their physical trusts (ETF’s) which guarantee full backing of the precious metals.

In the introduction, Eric Sprott made the point that the crisis is not over, although media and officials pretend so. There are many events that point to the fact the crisis is not solved. Think about the large Italian bank Monte Paschi which was bailed out because of their derivatives bets, the Dutch SNS Bank which was bailed out a weekend ago, the currency devaluations in Venezuela and Japan, etc. Linking this to gold, Eric Sprott said: “The people in Venezuela that held gold instead of cash or money in the bank did not suffer the devaluation, neither did the people in Japan.”

Think about it, in the case of Venezuela, the people holding gold had an appreciation of more than 40% of their asset just overnight. The currency war has only just begun and there are already so many cases in which gold and silver have served as a true preservation of wealth.

Additionally, Eric Sprott made the point that there is no recovery based on several figures. At the beginning of 2012, the estimated growth was 3.5%. But apart from what was realized in the stock market and some investment products that were issued by the government, what happened to people and the economy shows a totally different picture. In the US, there is a negative real GDP, a 2% tax increase, the highest gasoline prices ever for the time of the year, etc. The treasury department reports on a yearly basis their debt situation (US). “The 2012 figures showed that the present value of known liability went up 4.7 trillion dollar plus a cash deficit of 1.5 trillion dollar results in some 6.9 trillion dollar deficit given a GDP of 16 trillion dollar. There are too much commitments from the US which cannot continue, entitlements will have to be cut in the US.” Those figures do not show any economic recovery.

The Case for Gold

Current economic conditions are fundamentally bullish for gold, as summarized in this quote (Source: Markets at a glance, November 2011):

Gold and silver are not traditional commodities, they are money. Their value lies in their ability to retain wealth in environments marked by negative real interest rates, government intervention, severe economic uncertainty and vulnerable banking institutions.

The physical imports to China in the past two years have been astonishing. It contributes to gold’s bright outlook. Gold follows goes where wealth is created

An interesting slide with the title “Gold’s changing fundamentals” was presented during the seminar. It shows the evolution of physical gold purchases since the beginning of this bull market.

gold_physical_demand_sprott

The Case for Silver

Eric Sprott and his partners are convinced that the case for gold is good, but the case for silver is excellent. They consider it “the investment of this decade”, as shown in the next two slides.

silver_investment_of_decade

Personally, we find the following table really insightful. It compares today’s gold to silver price ratio of around 53 with the geological and historical gold to silver ratio, but also the GLD to SLV dollar based trading. Those ratios really put silver into perspective. The figures tell an interesting story on their own.

silver_physical_demand_sprott

Eric Sprott adds to this slide: “Most bullion dealers tell me that half of their business is in gold and half in silver. It means around 50 times more silver is being bought than gold. That cannot go on forever.”

The Case for Platinum & Palladium

It is no secret that Sprott has become a big fan of platinum and palladium. In a very recent infographic they explained the demand / supply fundamentals and the metals’ strong outlook. The next chart show the structural deficit in both platinum and palladium, which is a unique event since this precious metals bull market.

palladium_platinum_demand_supply

Sources: Johnson Matthey Platinum 2012 Interim Review, CIBC World Markets Equity Research 2012

7 reasons why Sprott funds outshine competition

In closing, one of the last slides listed the benefits of owning the trusts from Sprott:

  • secure storage
  • bullion assets not held with a bank-owned custodian
  • potential tax advantage for certain US investors
  • ability to redeem units for physical bullion
  • investment in physical bullion only
  • fully allocated physical bullion
  • potential to trade at a premium to the net asset value

More information about Sprott’s offering is to be found here

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