Seeking Alpha

Bullish On Gold, Sprott Not Hot On Central Planners

Includes: GLD, PHYS
by: Biz Bluetree

Gold managed in two straight weeks to close higher than $1,400, doing so on May 22 and May 30, giving market makers the notion ol' yellow is testing the upper end of its range.

Monday we found gold again testing $1,400 and reaching intraday $1,415 to close at $1,411. What's working in its favor? Is it the shifting sentiment on a weakening U.S. dollar despite the FED soft spin? Could it be the unstable equity markets in Japan giving support as some suggest? Or are you surprised gold is even above $1,000?

Could it be just what is to be expected of the barbarous relic as physical demand goes ballistic globally despite the paperhangers?

Billionaire Eric Sprott, legendary CEO of Sprott Asset Management, who is known to warn, "fear the financial system", shared his insights recently with USA Watchdog:

"We are going to have an excellent shot at $3,000 gold because this thing is totally sold out here based on the action of [April 12th and 15th]. If it was central bank manipulation, or somebody trying to break the market, it totally backfired."

Which is precisely the point here. Whether it was intentional manipulation or just a natural correction of the market, a torrent of physical demand was, and is the result.

"I mean these are staggering developments in a market where the supply has been essentially fixed for 13 years, Sprott continues. The mining supply went down last year. Mining supply will go down this year, and yet we see a huge surge of physical buying all over the place. This has been a wonderful response from people who realize the ridiculousness of what the central planners are doing."

"I can't believe that I can say to you that the US Mint has sold 1,000% more gold this [April], than April last year..."

Sprott knows people are desperate to preserve purchasing power. He questions government bonds that return next to nothing and is extremely bullish on owning gold, pointing to gold's consistent rise for 12 years, and still up, even now.

"It's obvious to me that's the choice [vid] people should make, Sprott said. Gold is one of few items in the world that can maintain its value."

Mr. Sprott was not hawking his Sprott Physical Gold Trust PHYS, which closed Monday at $11.20, up 1.73% on volume of 656.4K, not far off its 52 week low - nor was he advocating hold in your hand gold, nor did he suggest mining stocks. He was simply and incredulously making a case for gold as a safe haven for preserving purchasing power, period.

However, Sprott Asset Management associate Maria Smirnova who co-manages Sprott Silver Equities Class A (a mutual fund) with Sprott and Charles Oliver, and is responsible for supporting the portfolio management team at SAM in the precious metals and mining space, did share an opinion on mining stocks with Brian Sylvester recently in The Gold Report:

"I think you have to remain optimistic, that the prices of the commodities, especially silver and gold, turn around, Smirnova said. I do not even want to call them commodities, to be honest. I would call them currencies, especially gold. Silver is a hybrid because it also has industrial applications."

But aren't most mining stocks at depressed valuations and taking a beating right now? Aren't conservative investors afraid to touch them?

"Once the turn happens, claims Smirnova, these stocks could explode in a good sense and completely revalue to the upside."

Which tells me very simply it is time to buy the bargains.

Another deep well of real information regarding the metals mining space is Casey Research. I especially enjoyed reading David Galland's insights and his comment below.

After discussing in great detail for Casey Daily Dispatch his three reasons why the gold bull is still intact; #1 Opposition to Austerity, #2: Declining Global Gold Production, #3: Physical Demand, Galland of CR made this intelligent point:

"There are other reasons for the base case for gold remaining intact, including the very real potential of a black-swan event related to the mega-trillion dollars in derivative positions, but the combination of locked-in currency debasement, pressure on supply, and pent-up demand gives me all the reason I need to continue viewing short-term fluctuations to the downside with no concern, other than as a potential opportunity to add to positions."

That's what this investor did in April when silver and gold went on sale, and still loading up. Favorites here are physical, junk and bullion silver coins, and being long, junior and small cap gold miners with the greatest up-side potential, as discussed previously.

There was no emotional reaction to the April swoon here. No panicking. No dumping of quality stocks like others impulsively did locking in absolute losses. Why? The bottom line reasons for owning silver and gold have not changed.

Sprott says, "I don't know why people can't accept that there is a serious vulnerability in the financial system."

NOTE: Units of PHYS trade on the NYSE and the TSX and provide investors access to the physical gold bullion market with the liquidity of an exchange traded security. With these allocated accounts, for many investors, transaction costs related to owning the trust are expected to be lower than the costs to purchase, store and insure physical bullion directly.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.