Eric King interviewed Sprott today for further clarification of exactly why Sprott is exchanging gold for silver.
Sprott simplifies things down to the silver/gold ratio. Sprott believes silver should be trading at 16:1, and it is currently 45:1.
We believe Sprott's forecast of a 16:1 ratio is ultraconservative, and we see the silver/gold ratio reaching a MINIMUM of 5:1.
We’ve put a notice in that we are going to sell two million shares of the Sprott Physical Trust, which would generate something like $32 million of proceeds, and it’s my intention to move that into (physical) silver. As you know I have opined very often that I think silver should trade at a 16/1 ratio to gold. That would imply a price today of something like $110 or $120, (and today) it’s $40.
...The availability in dollar terms of gold is 100 times that of silver, so you can’t keep buying at a one to one ratio without something giving here. As long as people keep buying it you know the price has to go up, there is very limited supply. I think Comex has something like 27 million ounces (available for purchase), which is all of one billion dollars. What is one billion dollars these days? I mean there’s probably 500 different organizations that could clean them out.
You can almost sense that we are going to go back to a precious metals backed currency. Just think of the demand there would be if these two products (gold and silver) had to go into circulation and you need this physical commodity. So I have no doubt that these prices will continue to escalate.
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