Why Eric Sprott believes silver prices will triple to $100 an ounce in 2012

Famed investor Eric Sprott of Sprott Asset Management christened gold the investment of the 2000s. Now, he’s loudly proclaiming that this decade will belong to silver.

Famed investor Eric Sprott of Sprott Asset Management christened gold the investment of the 2000s. Now, he’s loudly proclaiming that this decade will belong to silver. His pronouncements are particularly interesting as investors seem to have lost interest in the white metal with prices trending down over the past month.

Of course, silver is still in the green this year (up 7 percent around $30 an ounce), but it’s hard to argue the fact that investors are giving the metal the cold shoulder. The gold-silver ratio is in a strong uptrend (per Seeking Alpha), investors fear that the Federal Reserve could potentially raise interest rates after the presidential election and silver production is on the rise.

Despite all those factors, Sprott believes both gold and silver prices will hit new highs before the end of the year. It’s silver, though, that he thinks will shine the brightest. And he bases some of his reasoning on data from the U.S. Mint:

“They sold as many dollars of silver as they sold dollars of gold last year in terms of gold coins,” Sprott said during an April 20 interview with Goldseek Radio. “That means that essentially, with silver trading at a 50 to one ratio, people bought 50 times the amount of silver as did they gold.”

Sprott’s arguments for new highs in the silver market can be boiled down to three factors: silver price manipulation, a gold-silver ratio that could start shifting back toward silver and demand that’s out-pacing supply.

Indeed, industrial demand will be key to ever higher silver prices.

“Annual production is about 900 million ounces per year, including recycling,” Sprott said (per Frank Curzio at Stockhouse.com). “Industrial usage alone will rise to 660 million ounces by 2015. That leaves only 240 million ounces for coinage, central bank purchases, and investment.”

Sprott’s prediction makes silver mining stocks look particularly attractive. “If Sprott is right and silver prices begin pushing toward $100 an ounce, these companies (Fortuna Silver: FSM, Silver Standard: SSRI, and Endeavor Silver: EXK) could go up several hundred percent from these depressed levels,” Curzio writes.

Economically, things feel like they’re improving in the U.S., but that’s just smoke and mirrors, Sprott argues. “It’s a BS rally,” he told an investor audience in Toronto last month (per Gordon Pape). “We have a system that is breaking down.”

When that systems starts showing cracks, Sprott believes silver prices will start climbing. And they won’t stop until we hit new all-time highs for silver.

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