Sprott PSLV and PHYS premium fall to a record low

Today we record the lowest premium for the Sprott physical silver and Sprott physical gold trust, indicating a disinterest in gold and silver.

The premium for PHYS fell to a record low of 2.33% (Chart 2). The premium for PSLV fell to a record low of 5.86% (Chart 1).

(and if nobody wants it, it's time to buy it)

Chart 1: PSLV Premium (%) (blue) VS Price (USD) (orange)

Chart 2: PHYS Premium (%) (blue) VS Price (USD) (orange)

A look at the balance sheet of the big 4

Let's take a look at the balance sheets of the four biggest economies of this world (Europe, USA, China, Japan) and discuss their effect on stocks and precious metals. Although the USA and Europe have the biggest GDP of the four economies of this world, surprisingly, China has the biggest balance sheet of them all, with a whopping $US 4.5 trillion balance sheet. Second comes Europe with a balance sheet of $US 4 trillion. Then comes the USA with a balance sheet of $US 2.9 trillion. And last but not least, Japan with a balance sheet of $US 2 trillion.

To read the analysis, go to: A look at the balance sheet of the big 4 economies

Bretton Woods Sytem: Gold should be at $US 203000/ounce

If we would be going back to the Bretton Woods System of 1944, Mike Maloney calculated that the gold price should be at $US 20000/ounce based on foreign central banks only. To calculate this, you divide total amounts of dollars at central banks by the total ounces of gold at the treasury.

James Turk uses a similar Gold Money Index:
Central Bank Foreign Exchange Reserves/Central Bank Gold Reserves = Fair Price of Gold

And his calculations go to a price of gold of $US 11000/ounce.

But we do not live in a world of solely central banks. If we now take into account not only central banks, but also government debt, personal household debt, corporate debt, financials, etc..., we get a very different picture.

Let's calculate what the gold price should have been in 2008:

Total credit: 14.4 government debt + 11.9 household debt + 8.8 Corporate debt + 8.5 financial debt = $US 43.6 trillion in 2008. (See chart 1)

Total ounces of gold in US treasury (2008): 261.5 million ounces of gold

Total credit divided by ounces of gold at the treasury (2008) = 43.6 trillion/261.5 million = $US 167000/ounce

Chart 1: US Total Credit Market Debt as % of GDP

So basically  the gold price should have been $US 167000/ounce if we went back to the Bretton Woods System in 2008. Since 2008, the gold reserves at the US treasury haven't increased one bit. But today Mike Maloney calculated his version of the gold price.

Mike Maloney calculated everything in it (all dollars convertible into gold), then the gold price should be at $US 203000/ounce (see second video). Which is total credit divided by the number of ounces of gold at the treasury.

So basically we went from $US 167000/ounce to $US 203000/ounce from 2008 to 2012. That's a huge amount of money printing, while the gold at the US treasury hasn't increased one bit.

Conclusion: there is still a boatload of upside in the gold price (GLD) (PHYS) and the silver price (SLV) (PSLV).


Here is the interview of GBI (Gold Bullion International) on 5 March 2012.