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The Guggenheim "#1 Conviction Trade" - Craig Hemke (05/02/2020)

The Guggenheim "#1 Conviction Trade" - Craig Hemke (05/02/2020)
By Craig Hemke 4 months ago 57315 Views 2 comments

February 05, 2020

At the recently completed World Economic Forum in Davos, many interesting stories and headlines emerged. Here's one you may have missed.

In our 2020 forecast, we wrote that you should expect higher gold and silver prices this year due to a continuation of the trends from 2019. And we expect great things for "all forms of precious metal" as the global investment community slowly begins to add asset allocation to the sector. If you missed this forecast in January, here's the link:


As 2019 ended, global asset allocation to the entire precious metals sector remained under 1%. And by the term "sector", we mean not just physical metal but all of the substitutes too: futures contracts, unallocated accounts, ETFs, and the mining shares. So what will happen if continued debt monetization, QE, and negative interest rates combine to drive global asset allocation to 2%? Or 3%? You'd have a massive amount of new dollars chasing what is primarily a finite amount of investment opportunities. The inevitable result is higher prices, and that, in a nutshell, is the basis of our 2020 forecast.

Now back to Davos. Over the weeklong confab, there were all sorts of financial predictions and prognostications, so it would be easy to miss any one in particular. However, one caught our eyes at TFMR, and you should be sure to see it too.

There is a global asset management company called "Guggenheim". You may or may not have heard of them before, but frankly that doesn't really matter. What DOES matter is that Guggenheim Partners has more than $270,000,000,000 in assets under management. That's a lot of cash, but Goldman's AUM is 8X that amount, so it's not like Guggenheim is some sort of financial behemoth.

The Chief Investment Officer at Guggenheim is a man named Scott Minerd. While in Davos on January 22, Minerd was interviewed live on Bloomberg television, and he made a few headlines by describing the equity markets as a "Ponzi scheme". Simply watching the two hosts wriggle and squirm as they hear this makes the clip below a must watch. However, what you really need to hear is what Minerd calls his "#1 conviction trade of 2020". To get it, you need to watch all the way to the end.

So that's nice. Scott Minerd thinks that SILVER is his #1 trade idea for 2020. Great! That puts him with Ray Dalio, Stan Druckenmiller, and a few other notable big shots who've publicly stated that they like the precious metals. More and more of this type of notoriety for the sector will certainly help to drive that all-important global asset allocation from 1% to 2% and beyond.

But let's get down to the heart of the matter. What will Minerd actually recommend to Guggenheim clients, and what will he himself purchase as CIO? Probably something like the SLV or some other ETF. Maybe he'll get really crazy and recommend some unallocated metal at what he wrongly thinks is a trustworthy bullion bank.

But what would happen if Minerd really walked the walk? Again, Guggenheim claims more than $270B in assets under management. If Minerd is really serious about his "#1 Conviction Trade", what could he buy?

He could start by buying the entire junior silver miner ETF—the SILJ from PureFunds. That would only cost about $150,000,000.

For fun, he could also buy the entire junior gold miner ETF—the GDXJ. That would only cost about $4.8B.

So far, he's only invested $5B, and that's less than 2% of Guggenheim's AUM. You'd think a "#1 Conviction Trade" would be worth more than that.

So let's next have Minerd buy the entire senior gold miner ETF—the GDX. That's more expensive, but he could do it for about $13B. Now we're getting somewhere, but that's still only $18B and about 6.7% of his AUM.

And in the end, it's silver that's his big trade idea, so why not just buy all the silver in the world? It's been said that, at most, there are only about 1.2B ounces of physical silver above ground. At $18/ounce, ole Scotty-boy could buy every single ounce for under $22B...which would still be less than 10% of Guggenheim's assets under management.

Yes, there's a certain amount of absurdity to all of this, and that's the point! Guggenheim Partners is just one tiny cog in the global asset management machine. However, if they took even a small portion of their assets under management and applied it to the precious metals, they could almost corner the entire freaking sector! So what happens when Goldman, Blackrock, BoA, Vanguard, Fidelity, State Street, Allianz, Northern Trust—all with TRILLIONS under management—begin to shift some client cash into the precious metals in all their various forms? Do you think that gold will remain below $1600/ounce and the GDX under $30? Not a chance. The world is awash in cash, and the precious metals sector is too small to absorb even a tiny fraction.

So, in summary, understand that the macroeconomic conditions that drove the precious metals to their best gains in a decade last year will continue in 2020. Once the global investment community begins to understand this too, things will move pretty quickly. Thus, don't delay. Take action today.

About Sprott Money

Specializing in the sale of bullion, bullion storage and precious metals registered investments, there’s a reason Sprott Money is called “The Most Trusted Name in Precious Metals”.

Since 2008, our customers have trusted us to provide guidance, education, and superior customer service as we help build their holdings in precious metals—no matter the size of the portfolio. Chairman, Eric Sprott, and President, Larisa Sprott, are proud to head up one of the most well-known and reputable precious metal firms in North America. Learn more about Sprott Money.

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.You may copy, link to or quote from the above for your use only, provided that proper attribution to the source and author is given and you do not modify the content. Click Here to read our Article Syndication Policy.

MC 4 months ago at 9:39 PM
That begs the question that we've all been thinking. Why don't the billionaire boys like Eric, Rick, Marin, Ross, Hugo, Rob, Dr. Kap, etc, etc, et al. combine their billions and simply do what's mentioned in this article? If the market is SO SMALL and demanding delivery breaks up the price suppression, why don't they do it???? I'm actually curious.
j taylor 3 months ago at 8:22 AM
Trying to find some place to ask TF this question re: palladium and the CRIMEX -- ok, here it is ... I understand the idea that palladium might reveal once and for all the criminal fraud of the paper-leveraged market run by the CME/COMEX/et al. I know these paper/"futures" markets exist solely for the purpose of (besides the Fed-backed banksters making easy $$$ by their allowed manipulations) suppressing prices of physical...got it.

But I see another very reasonable interpretation of palladium vs silver price action on the COMEX: one could argue that it shows that the COMEX price-fixing actually DOES work: There exists a PHYSICAL SHORTAGE of palladium which can no longer be hidden, so the price has gone up and even the paper-price-control market cannot cover it or suppress the price any more. And that proves that there is NO shortage of silver, since it can continue to be sold at these low prices without creating a shortage. Therefore, the prices are not low. Were there a shortage, it would act just as palladium is acting. Where is the flaw is this argument?

Add into that Butler's longtime and continuing argument that JPM has sucked out of the PHYSICAL market, how much now?, 800-900M oz of actual physical silver over the past 10 years, and there STILL isn't a physical shortage?? So how can we say the silver price should be higher by the argument that palladium is flying because of a shortage, meaning that without the physical shortage the price should be much lower? And where the h*ll did all that physical silver come from that JPM has supposedly scooped up and hoarded without creating a physical shortage today? TF, any help here? Thanks.

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