Are Physical Precious Metals Still in Demand?

The past couple weeks have been a somewhat trying time for precious metal investors.  After liquidity concerns and euro zone theatrics, precious metals have been in a downward spiral.  On Friday, gold settled at $1,685.70, while silver closed at $31.01.  However, investors continue to acquire physical gold and silver in order to protect themselves from the current financial landscape.

Canadian billionaire, Eric Sprott, has been a strong investor and supporter of silver.  He is the CEO and Chairman of Sprott Management, a $10 billion investment firm.  In 2010, Sprott purchased $580 million in silver, which was accompanied by a huge gain in silver prices.  Now, Mr. Sprott is planning to purchase more physical silver.  According to Profitimes, Eric Sprott recently filed a prospectus for the purchase of $1.5 billion of silver bullion in order to cover expected demand for the company’s exchange traded fund, Sprott Physical Silver Trust.  At a price of $35 per ounce, this would led to nearly 43 million ounces of physical silver being bought.  A staggering number that could easily send silver soaring in the coming months.

In a recent interview, Eric Sprott was asked how the current stage in the financial crisis would compare to 2008 and 2009.  He said, “I think it’s going to be a lot worse because it took a certain amount of money to bail out Lehman, and all of the counter-parties to Lehman.  But when you have governments and sovereigns and major banks that have these issues, I just can’t imagine there is enough money to bail it out.” Eric Sprott believes so strongly in silver that he is recommending silver producers save their money in silver, rather than cash.  In a KWN interview, Sprott explains, “I’m writing a letter basically suggesting to the silver producers, you know you guys have all of this money in banks, why do you have it in banks?  Put it into silver, it’s a way better asset than having a bank deposit that pays zero interest rate and you take all of the risk of the bank on.”

Sprott Management is not the only entity taking advantage of lower precious metal prices.  According to newly released IMF data, Russia purchased 19.5 metric tons of gold in October, which brings their total gold reserves to 871 tons.  GoldCore explains that Russia has been accelerating their gold purchases in order to add to its gold and foreign currency reserves.  “This trend may continue to accelerate given the increasing tensions between Russia and the U.S. over Syria, the Middle East. Missile defense in Europe and other geopolitical and economic disagreements.  Russian Prime Minister Vladimir Putin recently accused the United States of living beyond its means like a parasite on the global economy and said dollar dominance is a threat to the financial markets.”

In our Gold & Silver Premium Newsletter, we advocate purchasing physical precious metals, as they offer no counter-party risk.  Throughout history, investors often turn to gold and silver for safe-haven protection.  Investors looking to add gold or silver to their portfolio should consider doing so, sooner rather than later.  Like normal insurance, gold and silver can be hard to obtain in a true time of need.  In August, Venezuela ruler Hugo Chavez decided to repatriate his $11 billion of gold from foreign bank vaults.  On Sunday, Chavez finally received his first shipment of gold, three months after the decision.  President of Venezuela’s Central Bank said the following about gold, “It has historic value.  It has symbolic value.  And it has financial value.  This guarantees that if there are financial problems in the international markets our gold will be safe here at home.”

If you would like to receive more professional analysis on equity miners and other precious metal investments, we invite you to try our premium service free for 14 days.

More from The Cheat Sheet