Sprott Says U.S. Depression Will Boost Gold Price (Update1)
http://www.bloomberg.com/apps/news?pid=20601213&sid=acQ4RaOnhRK4&refer=home
By Stewart Bailey
Feb. 3 (Bloomberg) -- Eric Sprott, the Canadian money manager who last year predicted banking stocks would collapse, said the U.S. is at the beginning of an economic depression that will help gold prices more than double.
Bullion may top $2,000 an ounce in coming years amid a series of financial catastrophes, the chairman and founder of Toronto-based Sprott Asset Management Inc. said yesterday in an interview. Banks will battle to replenish capital, Treasury auctions stand the risk of failing and the moribund economy will create a dire operating outlook for many companies, he said.
âThe trend is down, and thereâs not one signpost that says itâs changing yet,â Sprott said yesterday from Toronto. âWeâll stand by to wait to see those, and until it does, you have to assume it gets worse.â
Sprott, who manages $4.5 billion, said in March that the world was in a âsystemic financial meltdown,â a call that presaged the collapse of financial institutions including Bear Stearns & Co. and Lehman Brothers Holdings Inc. Since then, the U.S. has entered the worst economic slowdown since the Great Depression, credit markets have tightened and asset prices have dropped as companies and funds sell portfolios to raise cash.
The 81-company Standard & Poorâs 500 Financials Index has dropped 62 percent since Sprott said on March 6 he was buying bullion and gold-producersâ shares, while shorting financial- sector stocks. Gold slipped 6.3 percent during the same period.
So-called short-selling allows speculators to profit from a stockâs decline by borrowing shares, selling them to raise cash and buying them later when the price drops to repay the debt.
Sprott Funds
Sprott Hedge Fund LP posted a one-year return of 9.9 percent, while Sprott Hedge Fund LP II rose 18 percent in the period, according to data posted on the companyâs Web site. The Sprott Canadian Equity Fund dropped 37 percent.
Sprott now favors buying more gold stocks and bullion while selling the entire equity market short. Most at risk in the current climate are banks, discretionary consumer stocks and any companies needing to refinance debt, he said.
Sprott believes there is a chance that a U.S. Treasury auction will fail as countries use their resources to quell financial turmoil in their home markets, leaving less to help finance the worldâs largest economy. That outcome will have a âcatastrophicâ impact, he said.
âWhen do people stop buying the credit of the country? Thatâs a tough question to answer, but itâs on a lot of peopleâs lips right now,â he said. âEach country has their own financial problem, so thereâs no funding for anything external.â
Gold Investors
Such concerns have driven investors to the gold market, propelling the metal higher as other commodities have slumped and helping gold-producersâ stocks almost double in the past three months.
Greenlight Capital Inc., a $5.1 billion New York-based hedge fund, has invested in gold for the first time, while Federated Investors Inc.âs $1.3 billion Federated Market Opportunity Fund, which outperformed 99 percent of rivals last year, now counts Yamana Gold Inc. and Goldcorp Inc. among its largest investments.
Gold companies such as Newmont Mining Corp. and Kinross Gold Corp. have taken the opportunity to issue stock to bolster their own balance sheets.
Barrick Gold Corp. Chairman Peter Munk said last week he has been inundated with calls from wealthy investors seeking to buy gold to protect their capital.
âThe window to raise money for gold stocks has blown open,â Sprott said. âThe investing public has started to go to that one thing that they think itâs safe to invest in.â
To contact the reporter on this story: Stewart Bailey in New York at sbailey7@bloomberg.net.
http://www.bloomberg.com/apps/news?pid=20601213&sid=acQ4RaOnhRK4&refer=home
By Stewart Bailey
Feb. 3 (Bloomberg) -- Eric Sprott, the Canadian money manager who last year predicted banking stocks would collapse, said the U.S. is at the beginning of an economic depression that will help gold prices more than double.
Bullion may top $2,000 an ounce in coming years amid a series of financial catastrophes, the chairman and founder of Toronto-based Sprott Asset Management Inc. said yesterday in an interview. Banks will battle to replenish capital, Treasury auctions stand the risk of failing and the moribund economy will create a dire operating outlook for many companies, he said.
âThe trend is down, and thereâs not one signpost that says itâs changing yet,â Sprott said yesterday from Toronto. âWeâll stand by to wait to see those, and until it does, you have to assume it gets worse.â
Sprott, who manages $4.5 billion, said in March that the world was in a âsystemic financial meltdown,â a call that presaged the collapse of financial institutions including Bear Stearns & Co. and Lehman Brothers Holdings Inc. Since then, the U.S. has entered the worst economic slowdown since the Great Depression, credit markets have tightened and asset prices have dropped as companies and funds sell portfolios to raise cash.
The 81-company Standard & Poorâs 500 Financials Index has dropped 62 percent since Sprott said on March 6 he was buying bullion and gold-producersâ shares, while shorting financial- sector stocks. Gold slipped 6.3 percent during the same period.
So-called short-selling allows speculators to profit from a stockâs decline by borrowing shares, selling them to raise cash and buying them later when the price drops to repay the debt.
Sprott Funds
Sprott Hedge Fund LP posted a one-year return of 9.9 percent, while Sprott Hedge Fund LP II rose 18 percent in the period, according to data posted on the companyâs Web site. The Sprott Canadian Equity Fund dropped 37 percent.
Sprott now favors buying more gold stocks and bullion while selling the entire equity market short. Most at risk in the current climate are banks, discretionary consumer stocks and any companies needing to refinance debt, he said.
Sprott believes there is a chance that a U.S. Treasury auction will fail as countries use their resources to quell financial turmoil in their home markets, leaving less to help finance the worldâs largest economy. That outcome will have a âcatastrophicâ impact, he said.
âWhen do people stop buying the credit of the country? Thatâs a tough question to answer, but itâs on a lot of peopleâs lips right now,â he said. âEach country has their own financial problem, so thereâs no funding for anything external.â
Gold Investors
Such concerns have driven investors to the gold market, propelling the metal higher as other commodities have slumped and helping gold-producersâ stocks almost double in the past three months.
Greenlight Capital Inc., a $5.1 billion New York-based hedge fund, has invested in gold for the first time, while Federated Investors Inc.âs $1.3 billion Federated Market Opportunity Fund, which outperformed 99 percent of rivals last year, now counts Yamana Gold Inc. and Goldcorp Inc. among its largest investments.
Gold companies such as Newmont Mining Corp. and Kinross Gold Corp. have taken the opportunity to issue stock to bolster their own balance sheets.
Barrick Gold Corp. Chairman Peter Munk said last week he has been inundated with calls from wealthy investors seeking to buy gold to protect their capital.
âThe window to raise money for gold stocks has blown open,â Sprott said. âThe investing public has started to go to that one thing that they think itâs safe to invest in.â
To contact the reporter on this story: Stewart Bailey in New York at sbailey7@bloomberg.net.
