"The fundamentals for gold are unassailable, the long technical picture is excellent and gold remains very inexpensive when compared to almost every other alternative (most particularly, bonds, treasury bills and bank deposits). With currency debasement assured and some form of hyperinflation probable, gold should trade at several multiples of the current price before this bull market reaches its end." By John Embry
As the end of 2012 approaches, I took a look back at an interview I published in Seeking Alpha with billionaire Eric Sprott from Sprott Asset Management on November 13, 2011.
Eric Sprott is recognized as one of the world's premier gold and silver investors, and as an expert in the precious metals industry. He is Chairman of Sprott Money Ltd., and CEO, CIO and Senior Portfolio Manager of Sprott Asset Management LP, and Chairman of Sprott Inc.
Eric has been stunningly accurate in his predictions about the economy, including foreseeing the current financial crisis. He chronicled the dangers of excessive leverage, as well as the bubbles created by the Fed, while correctly forecasting the collapse of the housing and financial markets in 2008.
Eric's predictions on the state of the North American financial markets, gold and silver markets have been captured in articles he authored, titled "Markets At A Glance."
On this interview, we explored briefly the request made by Venezuela's President Chavez to repatriate their country's gold on deposit in English banks. We touched upon the fact that maybe such gold really does not exist or that maybe the amount of gold on deposit by central banks or even at Fort Knox might be a lot less than what the government numbers published recently seem to indicate.
The U.S. based Gold Anti-Trust Action Committee, or GATA, has long claimed collusion exists among financial institutions, and that central banks do not actually possess the amount of gold they claim to have.
John Embry, chief investment strategist of Sprott Asset Management, has also long maintained: "I firmly believe that if you look at all of the Western central banks, and the gold they allegedly own, I believe a significant portion of that is not in their vaults."
"They can say all they want," he told King World News, "but in the end, the truth will be revealed by the lack of physical gold in the market as they run out of enough gold to keep the price under control."
On a more recent interview for Kingworldnews.com, Eric Sprott touches upon the current requests made by Germany, Austria and now the Netherlands to bring the gold back to their own countries.
"There is (also) lots of discussion about repatriating gold, and that goes to Germany, Austria, now the Netherlands. I think the more instructive example was when they (Austrian politicians) asked the Austrian Finance Minister, 'What percent of our gold is held in Austria?' I think the number was something like 13% or 17%, and the rest was in New York and London."
Growing demands from German officials and politicians to formally check German gold reserves now held in the United States have sparked media reports that the gold reserves of several Western nations are believed to be smaller than previously thought.
Germany is believed to have 3,396 tons of gold reserves, the second-largest gold reserves in the world after the United States. German politicians, as well as Germany's federal Court of Auditors, have requested that the Bundesbank, Germany's equivalent of the Federal Reserve, check up on Germany's gold reserves, the majority of which are in storage in offshore banks.
The market seems to have developed an undercurrent of major physical support for the yellow metal near the 1,700 levels, as the supply/demand balance might be shifting from unlimited supplies to a potentially shortage situation globally.
Mr. Sprott additionally commented that based on the fact that gold represents about 1% of all the financial assets in the world, it is subject to a major adjustment in price that could exceed 500% from current levels.
"How can you go from 1% to 5% when you only have a 1.5% increase in supply each year? It's absolutely impossible. I find it almost hilarious to think that a mass (of investors) would try to get to that level because it would just be impossible. The only way you can go from the current 1% to 5%, is essentially to have the price go up by 500% and I think that's probably more likely what is going to happen."
Let's take a look at the gold and silver weekly charts and see what the forecast looks like for the remainder of 2012.
The February gold contract closed at 1717. The market closing above the weekly 18 and 36 day MA is confirmation the trend momentum remains bullish. With the market closing below the VC Weekly Price Momentum Indicator of 1725, it confirms the price momentum is bearish. Look to take some profits, if long, as we reach the 1738 and 1.765 levels during the week. Buy corrections at the 1696 to 1681 levels to cover shorts and go long on a weekly reversal stop. If long use the 1681 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
The March silver electronic contract closed at 33.60. The market closing above the weekly 50 and 200 day MA is confirmation the trend momentum is bullish. With the market closing below the VC Weekly Price Momentum Indicator of 33.75, it confirms the price momentum is bearish. Look to take some profits, if long, as we reach the 34.27 and 34.94 levels during the week. Buy corrections at the 33.07 to 32.55 levels to cover shorts and go long on a weekly reversal stop. If long use the 32.55 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: TRADING DERIVATIVES, FINANCIAL INSTRUMENTS AND PRECIOUS METALS INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.