guru on silver pictureI take Warren’s Buffett view when it comes to commodities. Warren Buffett stated:

[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

However many great investors including David Einhorn think gold will go up. Einhorn views gold as a currency just like the dollar. Silver is another asset that has risen a lot in price recently. I personally have no opinion on the future prices of gold or silver. I thought they were a bubble in 08,09,10, but the price has risen. The tech bubble lasted a few years, but gold has gone up for close to ten years already, so it is either a gigantic bubble, or not a bubble. That said I have no holdings in gold or silver.

Eric Sprott is considered by many even in the value circles to be the expert on Silver. He has made some nice money off of it:

Sprott’s wealth is estimated by Bloomberg at “at least $1.3-billion (U.S.),” based mostly on his publicly disclosed holdings in Sprott Inc. (SII-T8.71-0.08-0.91%) and some other Sprott-related companies, including Sprott Physical Gold Trust, stakes that have both hugely benefited from the run in gold. There may be more wealth in other private holdings, acknowledged Matthew Miller, Bloomberg’s new billionaire reporter.

Here is a brief profile of Sprott:

Eric Sprott has accumulated 35 years of experience in the investment industry. After earning his designation as a chartered accountant, Eric entered the investment industry as a research analyst at Merrill Lynch. In 1981, he founded Sprott Securities (now called Cormark Securities Inc.), which today is one of Canada’s largest independently owned securities firms. After establishing Sprott Asset Management Inc. in December 2001 as a separate entity, Eric divested his entire ownership of Sprott Securities to its employees.

Eric’s investment abilities are well represented in his track record in managing the Sprott Hedge Fund L.P., Sprott Hedge Fund L.P. II, Sprott Bull/Bear RSP Fund, Sprott Offshore Funds, Sprott Canadian Equity Fund, Sprott Energy Fund and Sprott Managed Accounts. In December 2004, the Sprott Hedge Fund L.P. was awarded the Opportunistic Strategy Hedge Fund Award at the Canadian Investment Awards. In addition, the Sprott Offshore Fund Ltd. won the 2006 MarHedge Annual Performance Award under the Canada-Based Manager category. Furthermore, in October 2006, Eric was the recipient of the 2006 Ernst & Young Entrepreneur of the Year Award (Financial Services) and the 2006 Ernst & Young Entrepreneur of the Year for Ontario. In December 2007, Eric was named Fund Manager of the Year by Investment Executive, a widely circulated publication for Canadian financial advisors. In October 2008, the Sprott Offshore Fund Ltd. won the award for the Best Long/Short Hedge Fund globally by HFM Week, a leading publication for the global hedge fund industry.

Eric’s predictions on the state of the North American financial markets have been captured throughout the last several years in an investment strategy article that he authors titled “Markets At A Glance”.

In the video below, Eric Sprott (www.sprott.com) and James Turk, Director of the GoldMoney Foundation, talk about how there isn’t enough silver in the silver market to back existing “paper silver” commitments. Sprott thinks that “silver will be the investment of this decade”.

They talk about the dynamics of the gold market and how it has entered the second phase of its bull market. They look at ETF, central bank and coin demand. They also look at the huge paper-to-physical mismatch. Eric calculates that only 0.75% of financial assets are currently in gold.

They discuss the importance of owning physical, not paper gold, and keeping it yourself or with a trustworthy company that gives you direct access to it. They talk about GATA and the significance of the work they do. They also talk about Sprott PHYS and PSLV and how they allow holders the option to redeem their physical metal, unlike most other ETFs.

They talk about fiat currencies and their flaws. The dollar, the euro and how bank leverage has built up since the Fed was established in 1913, setting the stage for a huge crash. Eric talks about bank failure Friday, the numbers released by the FDIC and all the signs pointing to the coming train wreck.

They talk about the attempts to prevent liquidation of bad assets and how governments are throwing good money after bad. Eric then talks about the 3 conditions that he thinks are necessary to see gold as overvalued, and how we are very far from that point at this stage. Both James and Eric see gold as reaching a parabolic phase before the bull market runs its course. They also comment on how little confidence most mining companies have in gold. This interview was recorded on August 4 2011 in London.

Eric Sprott is a shareholder of GoldMoney.

The video contains  33 minutes of Sprott’s view on gold. Below is the video followed by the full transcript:

James Turk: I’m James Turk. I’m a director of the Gold Money Foundation. I’m here with Eric Sprott, the founder and chairman of Sprott Asset Management.

Eric, I want to start off right away with silver. You’ve called silver the asset of the decade. We’re at $41.66 as we speak. What are you seeing here?

Eric Sprott: Well obviously, I’m very optimistic about silver for a number of reasons. Reasons that most people wouldn’t know about are the use of paper money in the silver market. At the peak when it was $49.80 or so, there was something like 800 million ounces of paper money trading.

We know that there’s about a million ounces of physical silver available each day for investment. So this preponderance of sellers just seemed unbelievable. Whenever anybody talks about the speculators in silver, I always say, “Well, who’s the speculator? The guy buying it or the guy selling it who doesn’t have a hope in hell of delivering it?” And so, we have this big short position in silver, and I’m sure it’s going to resolve very positively to the upside.

One other thing I should say about silver is I look at the sales of silver versus gold. The U.S. mint sells more dollars of silver than gold. The Canadian mint sells about a dollar and a half of gold to a dollar of silver. I know Gold Money probably sells more silver in dollars than gold.

James: That’s right.

Eric: Sprott Money does the same thing. So I see this as a decision by people to decide one versus the other. They can’t keep buying at a 1:1 ratio when the price of silver to gold’s 40:1. So I’m sure it’s going to resolve to the upside.

James: That’s an interesting distinction that you’re making, that the specs in silver are the paper shorts, whereas the serious players in silver are the physical longs. I haven’t really heard that before. That’s really an important distinction. What’s likely to happen to the paper shorts?

Eric: Well, they already got seriously burned. We had the price of silver go from $18 to $48. There

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