A $4000 Gold World

Sprott Says S&P 500 Index Will Plunge Below March Low (Update3)

By Matt Walcoff

Dec. 29 (Bloomberg) -- The Standard & Poor’s 500 Index will collapse below its March lows as an expected rebound in economic growth fails to materialize, according to hedge fund manager Eric Sprott.

The Toronto-based money manager, whose Sprott Hedge Fund returned about 496 percent in the past nine years as the S&P 500 lost 32 percent in Canadian dollar terms, said the index’s 66 percent rally since March 9 reflects investors misinterpreting economic data. He’s predicting the gauge will fall 40 percent to below 676.53, the 12-year low reached on March 9.

“We’re in a bear market that will last 15 or 20 years, and we’ve had nine of them,” Sprott, chief executive officer of Sprott Asset Management LP, which oversees C$4.3 billion ($4.09 billion), said in an interview Dec. 18.

Investors in Sprott’s funds have been rewarded by his holdings in gold, which has climbed 48 percent since the S&P 500 peaked in October 2007. The stock has since fallen 28 percent and declined 0.1 percent to 1,126.20 today for its first loss in seven sessions.

Sprott said the Federal Reserve has kept bond yields and interest rates artificially low through its program to buy agency debt and mortgage-backed securities. The central bank expects the securities purchase program to finish by the end of March.


Expiration of the program would reduce demand for fixed- income securities, forcing up bond yields and interest rates and hurting economic growth, Sprott said.

Loss of Faith

Should the Fed renew the programs while the U.S. government continues to run record deficits, investors will lose faith in the U.S. currency, he said.

“If they announce another quantitative easing, trust me, the gold price will go up another 50 bucks that day,” he said. Gold futures fell 0.9 percent today to $1,098.10 an ounce in New York.

Sprott has been bullish in gold and gold stocks, which are used as a hedge against inflation, since at least 2001, when the precious metal was trading below $300 an ounce.

Gold futures have slipped 7.2 percent this month in New York as the U.S. dollar has rebounded on data that signaled a recovery in the U.S. economy.

American payrolls fell by 11,000 in November, the fewest since the recession began, while retail sales gained 1.3 percent, twice the rate forecast in a survey of economists by Bloomberg, according to government reports released this month.

Unjustified Optimism

Sprott says investors have been too eager to see the data as signs of recovery. While the S&P 500 added 0.6 percent on the day of the employment report, a 23rd consecutive month of payroll contraction was no reason for optimism, he said.

“We don’t have employment gains,” he said. “We have less of a decline. That’s a sign of weakness. The data is weak.”

Sprott said gold is the only asset about which he remains positive in the short term. His C$1.42 billion Sprott Canadian Equity Fund -- which is up 23 percent in five months -- has 34 percent of its portfolio in mining stocks and another 39 percent in bullion as of Nov. 30.

He said though he has no target price for the metal he doesn’t think it has reached a ceiling after quadrupling over the past eight years.

“If you get into this thing where you’ve got to keep printing more and more and more, who knows about the price of gold?” he said. “It will be the new currency in due course.”

 Comments:

Eric Sprott is a financial disciple of guru Ian Gordon, known as the Long Wave Analyst.
There is a very good explanation of economic cycles over hundreds of years on Ian Gordon's website here:  The Long Wave Analyst


One of the reasons I have a strong opinion about gold, is its historical role in the monetary system, and its resistance to manipulation.  Fiat currencies have the Achilles heel of being easily created and manipulated by the issuer - the Federal Reserve.  We need to remind ourselves what fiat money is:
Currency that is based on a promise - that of the issuing country.
When that promised is not honored, a collapse soon follows.
What does the world of $4000 per ounce gold look like?
Certainly it is not a pretty one, one that we desire to live in, yet through man's own arrogance and striving for more, it will soon be upon us.

I expect the following:

• Collapse of faith in fiat currencies.

• High unemployment.

• Loss of ability by government to manipulate the bond market to keep mortgage rates down.

• Less ability by government to spend willy nilly on the pet project of the month since foreign creditors will lose faith in the ability of the US to repay and demand higher yields.

• Civil unrest in the worst hit areas of the US such as Detroit & parts of California & Florida

• Loss of ability for government to meet their Unfunded Liability commitments such as pensions and medicare.

• A gradual realization by the general public that democratically elected governments did not have their best interests at heart but, rather, served the agenda of a global elite.

•  Growing interest in religious faith, as faith in government (aka godvernment) shrinks.

• A slow return to more traditional values of saving and frugality as the public learns that the unsustainable consumption "growth by credit model" is a mass delusion.

As explained in an earlier post, this is part of Economic Advent



It is my view, that precious metals will play a key role in the revival of trade and commerce after the next credit crisis occurs.