Tuesday, December 6, 2011

Silver Held Hostage

Eric Sprott CEO of Sprott Asset Management, reckons silver producers are being held hostage by the paper silver market.

In a recent interview with Mineweb, Eric Sprott CEO of Sprott Asset Management, said he wished producers of the metal would "finally realise what the paper boys did to them in 2008 - they nearly bankrupted them all and yet they haven't got involved in these lawsuits which I find troubling."

Sprott recently suggested to silver producers that they “reinvest twenty-five percent of their 2011 earnings back into the silver. Sprott stated that the concept came out of two factors that influence the silver market, the existing weakness in the current global financial banking system and the amount of volatility in the system.

"For example, when silver hits $49.50 between the various paper markets, there was something like one billion ounces of paper silver sold that day - and purchased of course. But, we only produce about 900 million ounces a year... what do you think of the guys who were selling a billion ounces of silver who didn't have a hope in hell of providing it?"

In the interview, when asking if there had been any feedback to the idea, Sprott stated there had been “a groundswell of interest - more than he had ever seen before - but that still more needs to be done.”

"It's a pretty fine line right now whether they can meet all the demand on a day-to-day basis, if by putting 25% of their cash into silver - it might have the effect of decreasing the supply by around 10 percentage points... I believe 10 percentage points would be enough to make a difference."

He adds, "I'm very frustrated by what's going on in the paper silver market. I just find it unbelievable that you can have silver go down $6 in 13 minutes one time when the markets weren't really open and then you get four margin rate increases the next week - four... It smells like a set up to me."

Sprott feels that an imbalance in the system can be exposed with an investment in the physical market.

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