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« Are We Running Out of Silver? | Main | Silver prices Update 15th June 2011 »

Dive in Silver Price a “Setup,” Says Sprott

Eric Sprott.JPG
Eric Sprott

This is an interesting 'take' on the recent pull back in silver prices by Eric Sprott which was carried on, another site to bookmark if you have an interest in the silver space.

Eric Sprott is CEO of Sprott Asset Management and a long-time proponent of owning both gold and silver. He is also a long-time proponent of the belief in the conspiracy theory whereby large financial institutions are colluding to drive silver prices down, as when prices fell from around $50 to $32 an ounce in May.

“In my heart of hearts I believe it was a manipulation,” said Sprott in an exclusive interview with Silver Investing News. “There was no market, it was a setup. They’ve just pushed it down. It’s ridiculous.”

The recent price correction has largely been attributed to the increased margin requirements from the CME group. Between April 25 and May 5, COMEX increased silver margins to as much as 12 percent – or $21,600 per contract – from 6 percent, before silver tumbled 25 percent.

“China was closed, the UK was going to be closed that day, it was at the quietest time in the market and we all woke up and ‘bang,’ we had margin call,” said Sprott. “One of the most famous saying in the business is: never meet a margin call. Don’t put up the money, just get outta Dodge. This creates selling.”

Regarding who exactly is responsible for this manipulation, Sprott says that he believes those who initiated the recent drop in silver were large financial institutions unsatisfied with their current volume of holdings.

“We all suspect they’re the same guys that are mentioned in the 2008 lawsuits against the two major players in the silver market,” he said. “The guys who were short who were getting killed were losing huge amounts of money, so it was a perfect time to do something.”

Sprott is referring to two separate lawsuits filed by trader Peter Laskaris in federal court against JP Morgan Chase & Co. and HSBC.

Laskaris claims that the institutions held large positions in silver futures and silver options, then made large trades at key times, made large “spoof” orders that were placed and then canceled after the order has influenced the price, and communicated their trades to each other.

The silver market has long been the focus of manipulation theorists. Fueling this speculation, at a CFTC hearing to consider new rules to strengthen its commodity-enforcement powers, commissioner Bart Chilton said market players have made “repeated” and “fraudulent efforts to persuade and deviously control” silver prices.

In spite of his speculations of manipulation, it would be an understatement to say that Sprott is bullish on silver. Around the time of silver peak, financial blogger Kid Dynamiteand later the Globe and Mail reported that Sprott had sold 1.6 million trust units of Sprott’s Physical Silver Trust. Sprott later explained that he was in fact only selling so he could buy back in without the premium.

“Our position in silver did not change,” said Sprott. “If I can buy the silver back at a 20 percent discount from the value, then I can buy back 20 percent more ounces of silver in the physical market. One hundred percent of the proceeds of those transactions went either in the physical silver or into silver equities.”

Sprott also says that the force of quantitative easing is pushing the price of silver. The second round of quantitative easing is drawing to a close as the QE2 trade was “officially over” in late March. Many analysts, including Sprott, are prepared for  a QE3 around the corner, and that this would once again drive silver prices to record highs.

“A lot of that QE1 and QE2 are giving a tailwind to gold and silver. If you want to tell me there’s going to be a QE3, I’m going to tell you silver will hit $50 before we even know it,” said Sprott. “I’ve always publicly stated that it will trade at a range based on the gold price of 1/16 of the gold price, that’s what I think it historically was always at and I think it will go back there. The charts tell you that”

Looking to the future, Sprott says he believes demand should push silver to new highs. Over a billion ounces of silver are traded a year and yet around only 900 million is produced. There hasn’t been a huge increase in the amount of silver production in the last 10 years and yet the physical demand for silver, has changed massively. In spite of this demand, Sprott says he is still uncertain over what forces will ultimately drive the value of this precious metal.

“It’s hard to make a call on where for sure all these things are going to go because we don’t know what the next ridiculous policy on the part of central banks and governments are going to be,” he said. “Silver and gold are competitors to fiat currency. They’re competitors and for the capitalist system to function, people have to trust currencies.”

So, what do you reckon?

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Our model portfolio is up 338.11% since inception

An annualized return of 128.07%

Average return per trade of 40.41%

81 closed trades, 78 closed at a profit

Average trade open for 46.27days

sk chart 22 May 2011.JPG

The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today.

Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

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Reader Comments (2)

"This is an interesting ‘take’ "
I am sorry, but do you guys post any bearish article on gold/silver ? I mean, I have been reading you for 3 years now and it always has to go higher and when it isn't there is something 'weird' like manipulations or worse like "market isn't right". Is there any good analyst there who did some analysis and predicted the end of gold's bull market, like a top in crude oil or something like that ? Could you post that ? Thanks in advance.

June 16, 2011 | Unregistered CommenterDi

Your point is taken Di, we will try to get a tad more balance into what we do.

However, silver has moved from $4.00 to $35.00/oz and we are richer for it and overall we have few regrets.

June 16, 2011 | Unregistered CommenterSilver Prices

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