Fund manager Eric SprottDarren Calabrese/The Globe and Mail
The biggest rout in gold prices in decades isn't enough to sway Canada's chief gold bull from his faith in the metal.
Eric Sprott turned his ability to call the gold and silver markets into personal wealth that once topped a billion dollars. His investment firm, Sprott Inc., has been hurt by gold's recent plunge, but the company founder predicts gold will roar back and even hit new highs by the end of the year.
"I've always imagined that gold would hit a new high by the end of this year, over $1,900, so that is what I think," Mr. Sprott said in an interview Tuesday, with gold bobbing below $1,400 (U.S.) an ounce.
Mr. Sprott believes the yellow metal is safer than paper money, which can be printed by governments. He backs that up with his own investments, saying a few months ago that he has about 80 per cent of his money in the precious metals sector.
"I think [gold] will end up for the year, just like in 2008 ... because in a financial crisis, you don't want your money in a bank," he said.
He compared the current pullback to 2008, when the price of gold fell 30 per cent in eight months amid the financial crisis to $712 an ounce, only to rally to $873 by the end of the year and more than $1,900 by September 2011.
Mr. Sprott expressed his resolve for gold a day after prices nosedived nearly 10 per cent.
It was the steepest one-day decline since 1980 and sparked a broad selloff in Canadian gold mining stocks. The freefall in bullion prices – they have dropped 13 per cent in the past week – came amid bearish price forecasts, concerns the U.S Federal Reserve would ease its quantitative easing campaign, and fears central banks in Europe could sell gold to buffer balance sheets.
A turnaround in gold prices can't come too soon for Sprott Inc. Several of the firm's resource-reliant funds have posted lagging returns in recent years.
The company's flagship mutual fund, Sprott Canadian Equity Fund, plunged 10 per cent on Monday, bringing the year-to-date loss to 27 per cent. The fund posted an annualized loss of 8 per cent for the five years to March 31.
The Sprott Hedge Fund LP lost 34.2 per cent in the year ended March 31. Still, investors that got in at the beginning have done well -- the fund has returned an average of 11.2 per cent annually since its inception in 2000.
Shares of Sprott Inc., meanwhile, have also suffered recently, down 33 per cent so far this year.
Mr. Sprott asked his investors to stay the course on a conference call Tuesday, and even encouraged the purchase of more physical gold and silver as global investors flee from risky assets and commodity prices tumble.
Sprott's poor fund returns have hit the firm's performance fees, which are earned by beating certain benchmarks. And the company's mutual and hedge funds saw net redemptions of $567-million (Canadian) last year, which led the company to sell more physical gold and silver trusts to retail investors in order to boost assets under management. These physical trusts generate lower fee revenue on a percentage basis.
To shake things up, last year Sprott Asset Management installed two new co-chief investment managers – John Wilson and Scott Colbourne. The firm has also made some efforts to expand its investment focus beyond precious metals to encourage new investors.
But as for the recent gold selloff, Mr. Sprott pointed to speculators and said there's reason to stick with the metal. There are more buyers of physical gold than there is gold in the world, he noted. It's a fact that he said was evident in rising requests for deliveries on metals exchanges.
"I can tell you that on the ground, Sprott Money, which sells gold and silver maple leafs, did a record number of orders" on Monday. He also forecast scenarios where sellers would fail to deliver physical bullion on exchanges.
As evidence of the world's instability, Mr. Sprott pointed to the European debt crisis, and particularly the recent bailout terms in Cyprus that saw some large bank deposits take losses in exchange for $13.2-billion (U.S.) in financial aid from the European Union and International Monetary Fund. Weakness in the U.S. economy will also boost precious metals, he said.
Asked whether there was a scenario that might prove him wrong in his forecasts for gold, and silver for that matter, Mr. Sprott chuckled.
"Yes. Everybody stops printing [money]. The economy recovers. Governments get their deficits under control," he said. "Ha, ha, ha."