Eric Sprott: Gold and Silver are Obvious Buys Today

The coronavirus pandemic has left many investors wondering where to put their money, and in a webinar last week Canadian billionaire Eric Sprott provided some suggestions. 

Speaking during a Grit Capital event called Masters of Mining, Sprott discussed why he’s positive about physical gold and silver, plus gold’s price potential this year and his views on precious metals stocks.

Sprott’s most recent claim to fame is investing hundreds of millions of dollars in junior mining companies, but he is also a co-founder of Save Canadian Mining, an initiative launched last year to reinstate a securities trading rule known as the “uptick rule” or “tick test.”

He shared his webinar slot with Terry Lynch, the organization’s leader, and Sean Roosen of Osisko Gold Royalties (TSX:OR,NYSE:OR), another co-founder. Read on to learn what Sprott said.

This time is different for gold — here’s why

To kick off the segment, Sprott answered a question on whether now is the ideal time to get into gold.

Speaking candidly, he said that the best time to enter the market was in 2000, when gold was at US$250 per ounce and on its way to US$1,900. But now is still “a very, very good time to be involved in gold.”

Sprott believes there is a critical difference that makes the current circumstances different than those seen in the past. “It’s always been my view — and that of any other student of gold — that there have been forces at work in the COMEX and the LBMA who restricted the price of gold,” he said.

“(But) the reason I say that today is that a lot of us have noticed in the last few weeks that there seems to be a physical shortage of gold and silver.”

Physical demand for gold and silver has surged in recent weeks, driven by factors including investor concerns about COVID-19, refinery shutdowns and supply chain blockages; as a result it’s become difficult for the average investor to make purchases. At the same time, there’s been a divergence between the spot price of gold in London and the gold futures price in New York.

“One of the key things that’s going on is as we have these giant rising days of gold — some US$40 plus days, US$60 days — the most interesting thing that’s happened on the commodity exchange (is that) the commercials did not short into those rises. The open interest basically stayed the same,” he continued.

“(That) tells me that they’ve left town, they’ve realized the game is up — there’s no sense trying to short a paper contract when there’s no physical product around,” Sprott said. He added, “I think the fact that the COMEX might have unleashed the dogs suggests it’s a very good time (to be in gold).

Sprott also pointed to the fact that interest in gold from generalist investors is heating up.

“You can tell there’s more interest by the amount of money flowing into the physical exchange-traded funds,” he commented. “It’s quite stunning how fast they’ve grown here, and they’re consuming a big part of the production right now if this maintains itself.”

In addition, Sprott said the yellow metal is gaining more attention from portfolio managers, some of whom might not typically be interested in that type of investment.

“Some of the very key specialists in the finance world — and I’m thinking of, for example, Ray Dalio and Jeff Gundlach — they’re effusive about gold. And then there’s many others that have never spoken that way before. So we have quite a collection of evidence suggesting that people are going to gold.”

Buy physical gold and silver as prices rise

Speaking about where gold could go in 2020, Sprott said he thinks it could rise as high as US$2,000.

“Believe me, I’ll be the least surprised guy in the world to see (gold) go through US$2,000 this year, if not early this year,” he said. However, he doesn’t necessarily think that investors should follow his lead when deciding where to put their money.

As mentioned, Sprott has attracted attention in recent times for the massive amount of money he has injected into the junior mining space. One estimate puts the sum at somewhere between $200 and $300 million in just a few months.

“It might be a little early to speculate on the smaller companies, even though I have,” he said, pointing out that he did so in a different environment. “We weren’t looking at COVID-19 at the time, and shutting down the mines and things like that.”

As an example, he mentioned that he is heavily involved with Kirkland Lake Gold (TSX:KL,NYSE:KL), which has been dealing with coronavirus-related obstacles at its assets. “I don’t think the path is quite as clear for the mining companies today,” Sprott noted.

In different circumstances, however, he might still be on a buying spree.

“If we didn’t have COVID-19 in front of us right now, I would be gobbling up even more private placements in smaller mining companies — the values are quite extreme, and they’re extreme for junior and mid-tier producers,” said Sprott.

For now, he thinks physical gold and silver are where it’s at.

“It’s a very difficult time to invest, period, with this COVID-19, and essentially almost being in a depression, an economic depression … it’s a bizarre kind of world to be in. I know for myself I think the obvious purchases today are gold and silver — the precious metals themselves — and own physically.”

Other major names in the mining sector also took part in the Grit Capital event — click here to learn what Ross Beaty said in his segment, and stay tuned for a writeup on Rick Rule’s talk.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.