Gold and silver prices are being repressed by central banks, but Sprott Asset Management's Charles Oliver argues that demand pressure will cause this dam to burst sooner rather than later. As a result, he expects big increases in the prices of gold and especially silver, with a corresponding recovery of small- and mid-cap precious metal equities.
In this interview with The Gold Report, Oliver discusses several companies likely to prosper thereby, most of which will be profitable now, even at current bullion prices.
The Gold Report: Gold continues to languish under $1,300 per ounce ($1,300/oz), even as full economic recoveries in the U.S. and the European Union (EU) have yet to occur, despite trillions in new debt and stimulus. Meanwhile, we have two wars in the Middle East that could escalate, as well as reports that Russian troops are in Ukraine. With all that in mind, do you think that gold's fundamentals are less important than they once were, or is the price of gold being held back by other factors?
Charles Oliver: Gold is just as valuable today as it was 100 years ago. There was an orchestrated takedown of gold in April 2013. It has since traded between $1,200/oz and $1,400/oz, and this flies in the face of the conditions you mentioned.
We're going to have to be patient. We have gone through a bottoming process. We've had similar conditions before. In 1974, after the oil embargo, U.S. inflation was increasing dramatically, yet gold fell from about $200/oz to about $100/oz in 1976. Then over the next four years gold subsequently rallied to over $800/oz. In this decade, gold has fallen from $1,921/oz to $1,180/oz, but the fundamentals remain intact, and gold will regain its reputation as a unique store of value.
TGR: You used the phrase "orchestrated takedown." Do you agree with the thesis advanced by the Gold Anti-Trust Action Committee (GATA) that gold and silver prices are manipulated downward by central banks?
CO: A decade ago I was on the sidelines. Then, after 2008, when the Federal Reserve gave us quantitative easing (QE) 1, 2 and 3 and increased its balance sheet by $4 trillion, effectively fixing the bond market and price, I became convinced that GATA was correct. All the price-fixing scandals we've seen are not isolated incidents. The gold market is a relatively small one. When 400 tons of gold rapidly came onto the market in April 2013, I was persuaded that this was definitely an orchestrated takedown.
TGR: Can this gold repression be maintained, or is it a dam about to burst?
CO: I like that metaphor. Eric Sprott did an analysis that suggested that a fair amount of the gold putatively held by the Federal Reserve may not actually be in its vaults. Footnotes in the Fed's records indicate possession of about 8,000 tons but also suggest that some of that might have been loaned out. We don't know how much, but supply-and-demand numbers suggest it could be a very significant amount. I believe that the gold exchange-trade funds (ETFs) were raided because gold could not be found where it was supposedly held, so it was taken from the ETFs instead.
Much of the gold sold out of Western vaults has found its way into Asia, China in particular. To run a trading platform requires a certain amount of physical bullion to meet delivery demands. If deliveries cannot be met, confidence in the system will fail, and paper trading will dry up. I must say I was quite surprised that after Germany asked for its gold back from the U.S. and it was informed that delivery would take seven years, the market did not suddenly unravel. Nevertheless, I believe the central banks are running out of bullets, and when they do, we could see a very significant rise in the gold price.