In an interview on September 19, 2015, Eric Sprott, Founder and Senior Portfolio Manager at Sprott Asset Management, predicted a bright future for precious metals, trouble in the bond markets, and a possibly historical move down for stocks.

 

Sprott called the recent Fed decision not to raise interest rates, “About the most dovish statement the Fed could ever make. . ..It pushed any rate increase out to 2016, if at all.”

 

With signs of weakness around the world, “Weakness begets weakness,” Sprott said, “unless there is some policy that can come into reverse it.” However, he said, with zero interest rates and massive printing of money, “There are not many policy arrows left” for the Fed to revive the economy.

 

Sprott said the fact that the Fed brought international concerns into the argument about raising interest rates brings in a host of negative economic news that further forestalls an interest rate increase.

 

“I’m stunned to think that it’s been since 2006 that we’ve had a rate increase,” Sprott said. “This [talk of a] rate increase has been used to bludgeon gold and precious metals for the last four years, yet it’s never happened. I think we in the precious metals camp can assume there’s not going to be any rate increases, at least not in the immediate future [the next 6 months].”

 

Turning to the physical markets, Sprott reiterated that in the COMEX, the physical inventory that’s available for delivery is all of 5 tonnes and the ratio of paper claims is 252 times larger. Therefore, if just 0.4% of the people who are long gold exercised their futures, there would be no gold. COMEX has “bled” about 89 tonnes of gold this year and, Sprott said, “We see the same thing happening in other exchanges, so the COMEX is in a very fragile state.”

 

China and India are buying far more gold. India is also buying large amounts of silver. In August, India imported 1,426 tonnes of silver, while three years ago India imported 2,000 tonnes over the entire year. Therefore, 1,400 tonnes in a month is “a phenomenal change.” If that rate continues, it will be more than 10,000 tonnes this year in a 28,000-tonne world market. With China and India buying so much gold and silver, Sprott called it “Overwhelmingly positive for metals in a macro sense.”

 

Signs of a dearth of supply in gold and silver are appearing. Sprott said $15 coins are selling for $20. Sprott concluded that from a physical point of view, the data looks “stunningly good.”

 

Sprott said sales of gold are increasing in North America. He believes investors are turning to gold because of a “Lack of confidence in the powers-that-be who are running the Central Banks and the government.” He argued that Donald Trump’s ascendency is another sign that people are sick of the powers-that-be and are willing to vote for anyone to show their rebelliousness.

 

As stocks and bonds begin to take more “hits” to the downside, Sprott sees the possibility of a “tsunami of interest in silver and gold. . ..We could be right on the precipice of things falling into place for those of us who own gold and silver.”

 

Turning to the stock market, Sprott said, “Stocks should be driven by earnings and earnings,” which are down this quarter. He argued that “The ability of companies to keep earnings up is getting tougher and tougher.” Major companies are announcing layoffs and even Chairman Yellen said things look soft in the world economy. Sprott said it was “hard to imagine wanting to own stocks in an economy like that.”

 

Sprott suggested that perhaps the Fed wants the stock market down because they want someone to buy bonds, since China and OPEC are beginning to sell, not buy, bonds. To the Fed, the bond market is far more important than the stock market. If bonds become harder to sell, interest rates rise and the government will face significantly higher debt payments.

 

Sprott argued that if we didn’t have zero interest rates, there would be no housing bubble and no auto sales. He argued that low interest rates are the only thing that has somewhat held the economy together. If rates ever go up, it will be devastating for the economy, and for the US government, since it would have to pay far more for its debt.

 

Sprott sees the stock market as “overdue for a top,” signs of concern on the edges of the bond markets, and with gold and silver demand already high, the precious metals markets are due for a major move up.

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