I think gold is the reserve currency today. There is not a currency in the world that it hasn’t appreciated against by at least 300 per cent. And it has beaten every stock market. You can’t even rent a safety deposit box in Germany because they are all full of gold and silver … I am pretty convinced that gold will go a lot higher because it is under-owned as only 1 per cent of people’s money is in it. It could go to $2,000 an ounce. I could imagine it at $5,000. I am not giving a time frame on that, but I could certainly see that happening. But the real story now is silver SI-FT.
Why are you more bullish on that metal?
Gold has traded at a ratio of 16-to-1 to silver in terms of price, but today it trades in the range of 50 to 1. I think the gold-to-silver ratio is going to go back to 16 to 1 given the passage of time, say three to five years. And I bet you that silver overshoots. The gold-to-silver ratio may even get down to 10 to 1. I believe that the price of silver has been suppressed.
Do you like base metal stocks because of China’s growing demand?
I wouldn’t be a buyer today. If interest rates go up in Europe and you have these policies of contraction, how much can China bear? I don't believe in the growth of the developed countries, and China needs the developed countries to buy goods.
Sprott Canadian Equity, your mutual fund, has an impressive 20-per-cent annualized return over the same 10 years as your hedge fund. Why is that?
It was hard for me to imagine that it was possible. As it turned out, I was wrong. You can prosper in a bear market in a long-only fund. It has done very well because we just decided to keep pushing into precious metals … Whatever I own in my long-only fund is exactly the longs that I own in the same proportion as my hedge fund. It’s only the shorts that are different. [The shorts] are all in U.S. stocks with a focus on financials, including major U.S. banks and brokers, consumer discretionary and housing.
How much of your wealth outside of Sprott Inc. shares are in bullion and precious metals stocks?
I only own funds and gold and silver. I am probably 90 per cent in precious metals personally. And I don’t lose sleep over it.
This interview has been edited and condensed.
Sprott Favourites
Sprott Hedge LP does not reveal its positions monthly, but it holds the same long-only stocks as Sprott Canadian Equity, also managed by Eric Sprott. Here were the top 10 holdings in the mutual fund at Oct. 31.
Silver bullion
Gold bullion
Cash and short-term investments
Gold Wheaton Gold Corp.
Yukon-Nevada Gold Corp.
East Asia Minerals Corp.
Corridor Resources Inc.
Sterling Resources Ltd.
CGA Mining Ltd.
Timmins Gold Corp.
