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  • Eric Sprott: Central Bankers Are Gaming Gold



    Some people may look at the stock market and see economic recovery. Eric Sprott of Sprott Asset Management and Sprott Money looks at myriad other economic indicators and sees an economy still in decline. Despite his suspicions that central banks are keeping gold prices artificially low, he tells The Gold Report that he favors gold, platinum, palladium and especially silver, over the near and long term.

    The Gold Report: The price of gold has dipped under $1,600/ounce ($1,600/oz); silver is below $30/oz. Is this a case of living by the sword and dying by the sword, where precious metals prices only go up in a bad economy and are doomed to languish when things go well?

    Eric Sprott: That is an interesting question because I do not know what it means to go well these days. I see things going from bad to worse economically, and so do many others. Walmart just announced that January 2013 was a lousy month and its start to February was its worst in years. Apple’s iPhone manufacturer Foxconn just announced a hiring freeze in China because of a decline in iPhone production. Italian industrial production new orders were down 15%. You can feel the recessionary malaise setting in.

    Weakness begets weakness, and there are only two ways to stop weakness: fiscal policy and monetary policy.

    No one has any room for aggressive fiscal policy anymore. The U.S. is looking at sequestration. We just had a 2% tax increase. There is nothing left in the cupboard for fiscal stimulation. On the monetary side, we are at 0% interest rates, and we are printing money nonstop.

    We are entering a period of steady decline in economic well-being, notwithstanding the suggestions of central planners that H2/13 will be great. They always say the second half will be great because they know the first half will not be.

    TGR: In your opinion, what are the most important indicators of what is really happening in the economy?

    ES: There are many indicators: rail car loadings, car sales, personal income, consumer sentiment, to name a few.

    Granted, most of the consumer sentiment numbers have been OK, but a lot of those numbers follow in line with the stock market. Anyone who thinks that 70% of the population is better off has to be mistaken. The 2% increase in withholdings on someone’s salary implies a much bigger impact on his or her discretionary spending because a lot of spending is dedicated to things that do not change: mortgage payments, insurance costs, the cable bill. When you knock 2% off the top, it could affect discretionary spending by 4–5%.

    The one indicator you do not want to watch is the stock market because it is part of the financial fabric that the central planners are desperately trying to hold together. Not a week goes by without a crisis. Four weeks ago, it was Banco Monte dei Paschi. Three weeks ago, the third largest bank in the Netherlands had to be bailed out. Last week, Peugeot had to get a loan from the European Central Bank. Now the largest homebuilder in Spain has declared bankruptcy.

    TGR: Which takes us back to the first question: If there is no recovery and the economy is still languishing, why did gold and silver both drop last week?


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