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Eric Sprott and Gold Bullion

April 30, 2012 - Eric Sprott, the Canadian billionaire investor, is perhaps more known for his massive purchase of silver bullion than his work with gold bullion. However, as an investor with his ear close to the market, and being just far enough away to see the situation clearly, Sprott’s perspective on the current gold market and the future of precious metals is highly relevant.

A recent publication put out by Sprott Asset Management declares that, “when fundamentals no longer apply, review the fundamentals.” An interesting take on a reference to Ayn Rand, the tactic is certainly useful for making inferences about the economy in general.

Sprott declares they have not seen US recovery. This puts gold bullion and silver very high on the to buy list as they will inevitably increase in value as the depth and breadth of the economic malaise comes to light.

Fundamentals haven’t really applied in the gold market, theoretically, for some time. Gold has made several shifts downward that were at the very least questioned by gold investors. A major shift occurred in the spring of 2008, before the financial crash. Prices in gold and silver suddenly dropped for no recognizable reason while the economic news got worse and demand was significantly higher. Investors tried to reconcile these divergent dynamics, but nobody really could to satisfaction.

We may never understand all the fundamentals at work in the gold market and the major shifts that we have seen in the past few years intimate that it’s simply not possible. However, we can look at the macroeconomic data and clearly see the value of gold going through the roof as the trends begun at the start of the real bull market in gold have not eased in actuality and are gaining in velocity.

Sprott may or may not be right about the US economy, but his perspective on market fundamentals is very prescient in today’s market. Traditionally, we have used market fundamentals to project the course of the market, to understand the market from an economic perspective, and to infer what is happening in the real world. If those dynamics are no longer valid, we need to, as Sprott urges, review what we consider to be fundamentals.

Fundamentally, gold bullion is the best real asset and tangible good we have available to us in a dangerously paper market.

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Jonathan Monroe

Senior Staff Writer -

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