Eric Sprott repeatedly points out a fact that the gold bugs are not able to explain:
Over the past year and a half, the investment flows into silver and gold are nearly 1:1.
Investors cannot continue buying silver and gold at a rate of 1:1 and have the silver/gold ratio remain at 50:1. That is mathematically impossible.
Don't worry Eric, the silver/gold ratio won't stay at 50:1 for long, particularly once JP Morgan is finally forced to exit their massive naked short positions by the CFTC at some point in 2012.
Patrick MontesDeOca of Seeking Alpha Interviews Eric Sprott
Patrick MontesDeOca: Mr. Sprott, can you please give us the current situation in terms of price in the silver market? What you might see in the short term as it unfolds in the next six to twelve months, what is your forecast?
Sure, I take a longer term view than six to twelve months. I’ve been involved in silver for about probably almost ten years now and of course the price of silver has done wonderful things in that time period even though recently it has come under a lot of pressure. My thesis being that even though the last decade has been the decade of gold, this decade will be the decade of silver. I can only imagine that it will go back to its historical relationship to gold of 16 to one in term of price. And as an example of 16 to one, with gold at $1600 it would suggest that the silver price should be $100. And most of the data that I look at certainly as it pertains to day to day markets, and I don’t mean the Comex, we’re not talking about that, we’re talking about the physical market for silver, and we have data points that suggest that buying for silver by the public is almost on a ratio of dollars of silver being bought to dollars of gold being bought. We can see that the U.S. Mint’s data that comes out every month, and pretty much every day, so for example, the amount of silver coins being bought through the mint’s service – they sold 50 times the number of silver to gold coins. This month it’s actually running around 70 to one. This really means people are putting as many dollars into silver as they are into gold. But there is nowhere near the amount of silver to invest in as there is gold.
P: I think a lot of people would like to know, potentially, how soon would you see this change taking place?
Well that is a very tough question to answer because there are forces at work every day, right, and you have to exhaust those forces or they have to have some reason to change their view on what’s their best interest in the paper markets. I’ve always imagined there, or hoped that some industrial user of silver will say “Oh, I can’t get the silver” and the word gets out that there is a physical shortage. Or the people just continue to buy at the rate they are buying, because you just can’t keep buying silver on a one to one ratio to gold and have the price be 50 to 1. That is mathematically impossible.
P: So there could be the possibility that we may have a lot less inventory than what appears to be told on these government reports.
E: Sure, nobody really knows how much inventory there is. We know how much is in Comex, we know how much the PSLV owns, but theoretically that shouldn’t be available, beyond that, I just don’t believe there’s huge amounts of silver and we are buyers of silver every day. We’re very often delayed on our shipments. You know we could go in and buy 2 or 300 thousand ounces and we sort of get the common “Well, you know that shipment is going to take 2 or 3 weeks”, which really means, I don’t think there is really any ready silver inventory that’s just waiting for someone to say “Ok fine, I’m going to buy” [then] “We’ll deliver it to you” because it’s not really that difficult to deliver silver.
Read the entire interview at Seeking Alpha: