Could an infectious disease kill the monster that has been choking gold and silver prices for more than a year? On the heels of a lively Sprott Precious Metals Roundtable discussion, The Gold Report caught up with investor Eric Sprott to ask how a tragedy in Africa could impact the price of precious metals and mining stocks. We also spoke to his Executive Vice President of Corporate Development John Ciampaglia about a new way to gain exposure to gold.
TGR: How will an explosion in the number of Ebola cases impact the global economy?
ES: Fear of travel and business disruption is definitely going to have an impact on a fragile economy already weakened by recessions in Europe and Japan. An event like this could have serious negative repercussions because it changes people’s behaviors. If people worried about the security of bank deposits start pulling their money out, they would logically want to shift to gold and silver. All of a sudden, investors would come back into these markets and push the price up. No one is considering that. The natural Armageddon of disease could cause a financial Armageddon and precious metals are the natural comfort play.
Eric Sprott: There is already a shortage of gold and silver in the markets without a corresponding increase in the price. I wrote an open letter to the World Gold Council questioning its data on China. If you believe the Shanghai Gold Exchange data, China consumes more than 2,000 tons (2 Kt). In 2011, it consumed only about 1 Kt. In the last two years, China has bought an extra 1 Kt gold—25% of a 4 Kt market. If any country came in and bought 25% of the oil market, the wheat market or the orange juice market, the commodity price would not go down. Obviously, the physical gold market is not manifesting itself in the price changes.
We also see that in silver. Last year, Indians bought an extra 18% of the silver market, yet the silver price declined. That’s because the price is being run by someone who has avoided the physicality of the market. I hope the U.S. Mint will announce that it has to stop selling 2014 silver because the demand has picked up so much. That’s what I expect the Mint to do if it’s running out of silver. It would be interesting if some of these futures players were to stand up and demand delivery, because I don’t think the Mint could deliver.
Closing mines in Africa would just exacerbate the supply problem and cause things to finally change dramatically to the upside in prices as people publicly acknowledge the fundamentals.
Source The Gold Report
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