Eric Sprott Speaks Out About Physical Gold

Here is a transcript of Eric Sprott’s interview with Maria Bartiromo, on CNBC.

I haven’t bought in and I’ve been wrong since March ‘09. I still have a deep deep concern about the leverage in the banking system, a view which I’ve expressed over the last decade. I look at the inability of the government who are spending vast amounts of money to generate much growth in GDP.

In fact, there’s been some excellent work done on how the marginal value of a dollar spent by government is now negative. I can give you the example of running a $1.5-trillion deficit last year, and GDP goes up $200-billion, so we’re not getting much bang for our buck, but we still owe the buck at the end of the year, as we will at the end of this year, so I very much worry about that.

I also worry about what’s going on in China. The Chinese government has asked the banks to cool down the lending. The latest data in March shows that lending’s gone from 300-billion in the month, to $100-billion. I just look at $200-billion less each month, that’s $2.4-trillion less per year if it was to stay that way, and it obviously has to have an effect on their economy, as the lending of $2-trillion did, positively, last year.

When you look at China in 2009, they had a $4-trillion economy; they lent $2-trillion to people, they had a $600-billion stimulus, should generate some GDP growth. I’m not even convinced that 10% growth, which would be maybe $400-billion is a very good response to all the measures that we’re taking.

Re: Sprott Physical Gold Trust (PHYS)

Toronto is the capital for mine financing in the world, and in fact some people think, for resource financing in the world, and we’ve been a big part of it. Our view was that we wanted to could come up with a better vehicle than the SPDR Gold Trust (GLD). We think that we have a much better vehicle than the SPDR Gold Trust (GLD) for THREE main reasons:

1) You can actually get physical gold with your Sprott Physical Gold Trust (PHYS) units. You can’t with the SPDR Gold Trust (GLD)

2) the Tax rate on capital gains on our vehicle (PHYS) is 15%, in SPDR Gold Trust its 28% because the IRS considers it a collectible, and therefore taxes it differently.

3) The counterparty to owners is the Royal Canadian Mint, where we store the gold, and I would assure all your listeners that every bar is there. Its not a leveraged financial institution, its part of the government of Canada, and the risk of that institution not having the gold is remote.

Why Gold? Why gold now after the run its had …
Its been the investment of the decade, hands down, not withstanding central bank selling in it all decade long. I would say that gold looks better today than its ever looked. We have sovereign risk on the economic map today, that we didn’t have on the economic map before, and as I look at the problems in Greece, and I see people taking $4- or $8-billion out of the banks because they’re worried about the government, so they’re taking their money out of the banks, and maybe it’ll move to the other PIG countries, where do those people put those currencies? I think we can see that lots of people are putting it into gold, including some of the smartest investors in the world today.

Do you like other mining related commodities?
We love Silver, obviously as an offshoot to gold; Silver will act better than gold. There’s not as much silver inventory in the world as there is gold inventory. I’ve not been as big a proponent of the cyclical-based metals, copper (has doubled or tripled off the bottom), nickel, zinc, (some have tripled or quadrupled off the bottom), but I haven’t been there, because I worry that the economy, that the financial crisis that we went through, that we are supposedly out of, that we’re probably not out of it.

We’ve moved things from the private company space to the public company (sector) space, you know with the government taking over Fannie, the Freddies, and the AIGs, the Europeans bailing out the banks, the British bailing out their banks, and now the focus goes back to the government; so we’ll just see how long people will continue to buy their sovereign debt. If they stop buying their sovereign debt, then the reason we’re owning gold will just become more apparent.

How should a portfolio be positioned (or rather, how are you positioned)?

We run hedge funds, so you can be long and short at the same time, and as long as your longs are doing better than your shorts you’re okay. How deeply should you be involved in precious metals. I’m only going to give you my own experience:

We are 40% long precious metals, and we’re another 35% long precious metals stocks. We’re 20% long in Oil and Gas, and the rest miscellaneous. So, we’re essentially all in. We probably have the most levered position to those products that you could possibly imagine.

What’s the catalyst to move stocks lower?; I know you’re looking for this market to crack.

I think if a problem of slowing in China happens – you know the market in China peaked out in August last year, hasn’t gone anywhere. Their market doesn’t look like its buying into the Chinese experience as much as we’re buying into the Chinese market experience.

(from CNBC.com, April 16, 2010)