Sprott hires founder of metals-focused hedge fund

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Sprott Inc. has hired investment management veteran Trey Reik as a senior portfolio manager and precious metal strategist for Sprott Asset Management USA. As usual, the question with any investment manager hired by Sprott isn't, Is this person a gold bug? It's, How much of a gold bug are they?

The answer is, a lot of a gold bug. Mr. Reik, founder and managing member of Bristol Investment Partners LLC, a precious metals-focused hedge fund, is a prominent commentator on matters related to precious metals, gold mining companies and monetary policy.

What does he think of precious metals as an investment class and the state of balance sheets of the U.S. Federal Reserve, corporations, consumers and so on? We offer you two links to his past thoughts.

The first is an interview he did in 2003, before gold began its meteoric rise. In the interview he stated "gold is the only commodity that is money" and further explained his views: "Obviously, gold is a commodity, but that is not why I own it; not why I would own it, not why I should own it. The reason has to do with its being money. There are a lot of economic scenarios in which gold will separate from the rest of the commodities, certainly from the base metals; take an entirely different trajectory."

He went on to make the following point, which, though 12 years old, is still salient:

"The total value of all the above-ground stocks of gold is $1.8-trillion (U.S.). Half is on ring fingers and in teeth, leaving $900-billion. Central bankers have $400-billion of that. So, somewhere between $500-billion and $900-billion is 'available.' By way of comparison, the world is awash in something like $100-trillion in paper assets. All it would take would be a one-half of one per cent pendulum swing towards gold, and the market wouldn't clear within hundreds of dollars an ounce of current prices."

The second link is to a more recent summary of a presentation Mr. Reik gave to a Grant's Interest Rate Observer Conference in late 2013, following a steep drop in the price of the metal following its tremendous run up through the 2000s. According to John Goltermann, a partner with Obermeyer Wood Investment Counsel, LLP, who heard the presentation (titled: "Gold: End of an era or fat pitch?"), Mr. Reik "spent the majority of his presentation laying out the investment case for gold."

According to Mr. Goltermann, "Reik believes that, over the last decade, gold prices have been positively impacted by the increasing imbalance between paper claims on economic output and output itself. For Reik, there's too much of the former and not enough of the latter."

Mr. Reik told the presentation overall U.S. government debt had risen by almost five times the pace of nominal GDP since the early 2000s, and that "because debt and equities are claims on future output, one can't keep increasing the claims on future output five or six times faster than the growth in actual output without engineering a devaluation in the dollar's purchasing power. Mr. Reik said quantitative easing had fueled a run up in stocks that could not be supported by real economic growth, and that the risk of stock prices and reverse for gold was 'a simple technical adjustment rather than a reversal of the major trend that was in place prior' to the last round of quantitative easing," Mr. Goltermann said.

In a press release Thursday, Sprott CEO Peter Grosskopf said, "Trey brings to Sprott a unique breadth of experience and perspective as a gold investor. His experience and knowledge of global monetary affairs is a welcome addition to the Sprott team and we look forward to sharing Trey's insights and commentary with Sprott clients around the globe."