Canada's Buffett Bullish on Silver

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Paul Tracy

NEW YORK ( StreetAuthority) -- He might be one of the most unheralded investors of modern times.

The Globe and Mail newspaper called him "Canada's 'Hidden Billionaire.'" Others have referred to him as the "Warren Buffett of Canada."

No matter what you call him, Eric Sprott is undoubtedly one of the world's most successful investors. Earlier this year, Sprott Inc., his investment company, announced its assets under management had exceeded $10 billion. Bloomberg estimates Eric Sprott himself has a net worth of at least $1.3 billion.

So what is this billionaire investing mogul buying now?

Silver... and lots of it.

His flagship mutual fund, the Sprott Canadian Equity Fund, holds 25% of its assets, worth about $400 million, in silver bullion. Another 15% is held in silver equities such as stock of mining companies.

Why is he so bullish?

In an October interview, Sprott provided plenty of reasons. According to U.S. Mint statistics, the same amount of money that is going into buying silver bullion is going into buying gold bullion. With gold trading at more than 50 times the price of silver, this means investors are buying 50 times the amount of silver from the U.S. mint as gold.

China used to export 100 million ounces of silver just a few years ago. Now they import 100 million ounces each year.

In the physical market for silver, Sprott says, "All I'm seeing are buyers."

The price ratio between gold and silver used to be 15 or 16:1. Now it's more than 50:1. Meanwhile, silver in the Earth's crust is just about 15 times more abundant compared to gold.

According to numerous sources, Sprott says gold and silver should be trading at a 16:1 ratio. This means with gold at $1,600, silver should be changing hands at about $100 an ounce -- 245% higher than the current level of $29 per ounce.

The interesting thing is that it seems like the "Warren Buffett of Canada" isn't alone in having a bullish stance on silver. Demand for American Silver Eagles has been skyrocketing for years, indicating regular investors are highly bullish on silver as well.

The Silver Eagle is the most popular form of silver bullion. For years now, the United States Mint has been striking these coins as fast as it can. The U.S. Mint facility in West Point, N.Y., has been solely responsible for minting these coins since 2001. But even the mint facility known as the "Fort Knox of Silver" can't handle the soaring demand.

In the past five years, demand has grown at a 31% annual pace. The government has even authorized the San Francisco Mint to start producing the Silver Eagle coins for the first time in more than a decade to catch up.

And keep in mind that the increase in demand for silver bullion coins is coming even as prices rise for the metal. In the past five years demand for Silver Eagles has increased 285% while silver prices are up 120%.

Action to Take --> Demand for silver is showing no signs of slowing down. December's sales of the bullion coin have already topped November's, and there's still another week left in the month.

No wonder the "Warren Buffett of Canada" is so bullish.

Disclosure: Neither P. Tracy nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

Links:
  • Is this Small Stock the Next GE?
  • Why Silver Could be the Hottest Commodity of 2012
  • The Best Growth Stocks of 2012
  • This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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