Another Dire Warning on ETF's Like GLD, SLV

Sprott's Embry warns investors to make sure ETFs backed by precious metals

Investors should confine their exposure to actual physical metal or only to paper products with regular audits that support precious metals backing.

(Mineweb) As precious metals investment demand "is exploding on a worldwide basis," Sprott Asset Management Chief Investment Strategist John Embry urged investors to make sure "your exposure to gold and silver is what it is represented to be..."

"Very simply there are far too many proxies for the real thing," he warned retail and institutional investors at the Silver Summit in Spokane Thursday. "Thus I would confine my exposure to actual physical or only those paper products where a regular audit is conducted to irrefutably support the precious metals backing."

Nevertheless, Embry feels "gold and silver have presented remarkable refugees" during the current global economic crisis.

"The gold price to date represents just the tip of the iceberg," he stressed. "What is truly important at this moment is to have a good position in gold and silver and their respective shares."

"I'll stick to a target of $1,500 in the next six months but I am comfortable with the notion of it trading at several multiples of the current price before the bull market runs its course."

Meanwhile, Embry asserted, "I cannot over emphasize the magnitude of the impact that is going to be felt in the gold market when central banks can no longer supply the gold needed to meet burgeoning demand." The decision of central banks to accumulate 14 tonnes of gold during the second quarter of this year is evidence of the possibility, he added.

"Most observers do not realize how much central banks...fill the huge and growing gap between true demand and mine and scrap supply," he noted. Embry estimated the size of demand-supply gap exceeds 1,000 tonnes of gold per annum, which represents 25% of the physical gold supply.

The gap "virtually guarantees that the western central banks are getting dangerously short of available reserves...to continue dumping gold on the market," he suggested. In the meantime, a number of eastern central banks-who are awash in U.S. dollars-"are accumulating and will continue to accumulate gold as one avenue to diversify their resources away from the U.S. dollar."

Meanwhile, Embry forecasts that the gold-silver ratio, which is currently just under 60, to decline precipitously as the bull market in precious metals gathers steam."

Author: Dorothy Kosich wwww.mineweb.com

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