Silver-Backer Sprott Still Believes. Deeply.

According to Eric Sprott, CEO of Sprott Asset Management LP, silver will soon be a currency just like gold, despite the drop in price that happened last week. He encourages individuals to keep buying metals as a hedge against paper money.

By Carolyn Cui
May 9, 2011, 5:17 PM ET
WSJ BLOGS

After silver suffered its worst one-week drubbing in three decades, one of the biggest silver bulls gave a pep talk to hundreds of followers on Monday.

“Silver will be a currency just like gold. It’s logical to expect silver prices to go much higher,” said Eric Sprott, chief executive officer of Sprott Asset Management LP, which oversees a $1-billion silver fund that was $327 million larger at the beginning of last week.

As for the recent plunge, Mr. Sprott pointed at speculative short-sellers as the prime culprit, eliciting applause from the crowd of nervous believers. Silver skidded 27% last week, but poor man’s gold leaped 5.2% today, underscoring its rodeo-like allure.

Mr. Sprott, a big advocate for precious metals, trotted out familiar themes to back up his points: the Federal Reserve’s loose monetary policies, relentless bank failures and the fragile housing market.

Instead of U.S. dollars and other currencies, which are “questionable currencies backed with nothing,” people should buy precious metals, he said in a speech at the Hard Assets Investment Conference at the New York Marriott.

Silver kicked off its nasty week by falling $6 an ounce in 13 minutes last Sunday night, when both U.K. and Chinese markets were closed for national holidays. “But I was awake, throwing my guts up,” he said.

It’s been quite a week for silver — and for Mr. Sprott’s fund. Its value stood at $1.3 billion on April 20, slid to $922 million on May 6 and climbed back above $1 billion today as silver rebounded.

“If this was not the script for somebody wanting silver down, I don’t know what is,” he said, stressing his short-seller meme and alluding to the big moves on light volume at the start of the week. Trading activities in silver’s futures market and exchange-traded funds have well exceeded the amount of silver in the physical market, he added.

Mr. Sprott also addressed one of the most contentious questions between bulls and bears in the silver market: how much above-ground silver is there? Many bulls think all the silver being produced has been consumed and disappeared. Therefore, silver is facing a shortage.

However, mainstream commodities analysts think that some of the silver used in photographic films or batteries has been recycled and come back into the market as “secondary supply.” In other words, there’s more silver than bulls argue. Globally, total bullion stocks should at least be 1.5 billion ounces, including silver held by exchange-traded funds and private holdings in the form of coins and bars, according to GFMS Ltd. a London-based metals consultancy.

“Why shouldn’t silver appreciate more than gold if there’s less silver around,” asked someone in the audience.

“Do you want to come up to the stage?” Mr. Sprott quipped. “If gold goes to $3,200, silver should be at $200.”

With gold at $1500 and silver at $37, that would mean a bit more than a double for gold and more than a quintuple for silver.

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