The following is the transcript of Eric Sprott’s presentation at today’s Virtual Silver Investment Conference.To listen to the audio and view the slides associated with the presentation, please attend the conference here.

Good day ladies and gentlemen.This is Eric Sprott.It’s my pleasure to present to this virtual forum thoughts that we have on one, the financial markets and more particularly on gold and silver as the – where they stand in this environment.The title of my talk is Mania, Manipulation, Meltdown which is a topic I use very often because obviously there’s been – there was a mania that led up to the NASDAQ peak and the moving into what I’ve regarded as secular bear market for the last ten years.Throughout this period we’ve had manipulation of interest rates and currency prices and precious metals and so on and the meltdown really has to do with where we think the whole system is going.

So I will move into the presentation here.There are disclaimers which are there for people to look at and observe.But let me start off with the fundamental problem that I see in the world and it’s not the new problem that we’re discussing and it’s just a problem of the fact that banks have become over-levered and unfortunately when a bank has a leverage ratio of 20 to 1 it means you have $0.05 of capital supporting a dollar of paper assets.And as we know paper assets can change in value very, very rapidly whether they be bonds or mortgages or subprime loans or home equity loans or mortgages, all those things that have come under a lot of stress here recently.And it seems obvious that by far a preponderance of banks have lost all that equity.

And so for example on slide two here, UniCredit had to come out and raise $7.5 billion of dollars – sorry Euros, 8 to 9.6 billion simply because they had to pump up their capital.The irony of it all is in announcing the issue their stock was at six Euros and it went down to three Euros and they’re almost gonna lose as much in stock value as they’re gonna raise in the equity markets.And the trouble with this issue is the UniCredit is only one of probably 50 banks who has to raise money in Europe and I can imagine any bank CEO being in huge trepidation of having to announce another bank issue, another equity issue.So how do the banks recapitalize themselves?

The next bullet point was justthe do the banks recapitalize themselves?theanother anks who has to raise money in europe ha eltdown ry how much these Italian banks abuse in this new ECB facility and as we’ve also seen from the latest G6 offer of basically unlimited loans, the banks in Europe, the 523 banks borrowed something like $750 billion and they’ll get a kick at that can every three months for the next three years.And why do they have to borrow $750 billion?Because the deposits were moving out.There’s no need for a bank to raise money if no one’s taking their deposits out but the deposits were moving and the ECB together with the other central banks had to set up some line and that’s exactly what’s happened.

So on slide three we show the book equity of these banks versus their assets just to prove that the 20 to 1 ratio is exactly what we’re dealing with and that’s presuming that the bank balance sheets in fact have on them all the obligations of the banks and of course that’s one of the things that we all question. I would also point out that by our own calculations based on the market cap of these banks, the market cap is about half of the equity now because all the banks are trading at a discount to their book value.It’s also noteworthy that when they had this lending program in Europe that all the banks took the money and gave it back to the ECB which basically tells us that the banks in Europe distrust each other.They don’t wanna lend to other banks.And so the fact is that on a market cap basis to assets, they are trading at about a 40 to 1 ratio.

Now because – and I’m gonna move on to slide four here.Because of the problems in the banking system which initially were attempted to be solved by the sovereigns, we end up with the sovereigns having problems.The best example would be Ireland who bailed out their banks, Iceland who bailed out their banks, pretty well every country’s bailed out their banks.But in some cases because of the support that the sovereigns have to give to the banking system, the sovereigns end up with trouble.So for example Hungary gets downgraded to junk.We also had just this last little while where I don't know what the number countries were downgraded but there was something like probably 15 of the 17 countries got a downgrade or maybe it was 12 of 17 got downgrading but that’s because they're all trying to support a banking system which desperately needs funding and then it creates stresses at the sovereign level.

On slide five I basically show you the setup of what a bank looks like and as you look at those assets on the left-hand side you have to realize that most of those have had serious decline particularly when we look here in the U.S. as an example where the subprime loans, the home equity, the mortgages that are all under water, the student loans, things like that. I mean there’s so many cases of situations where the bank’s not likely to get their money back and of course the decline is more than the five percent equity that they had.And because of this problem in the banking system we’ve had a plethora of programs that governments have provided and those things – some of the program include QE, QE1, QE2, TARP, TEALTH, of course the recent G6 maneuver.We had Cash for Clunkers, we had home ownership programs., you’ve been so much interference by governments to try to make the system work and I can almost guarantee you that for all of those efforts and all of the things, the stresses and the balance sheets that have gone on at the now central bank level and for all the stresses and deficits, we’ve accomplished nothing.Like GDP has hardly grown in the last three or four years and it’s probably if it was calculated correctly, probably down.

The next slide basically shows what the credit default swap rates did for banks during the Lehman crisis and you can see they all skyrocketed up there more so than they have done this year.And the reason I have this chart is because I more want you to look at the next chart which is what happened to the credit default swap rates of governments and sovereigns during the same Lehman crisis.And you can see that where it hardly looks like a blip back in ’08, ’09, as we went into ’11 of course the whole thing blew out because the problem had been transferred from the banking system to the sovereign system.I’ve talked about the ECB balance sheet blowing out.We also know that the fed balance sheet’s blowing out.As I sit here today I hear about the IMF preparing a $500 billion facility.

And one of the things that we should bear in mind is that there can always be a unintended consequences of these various programs and one of the unintended consequences that I think the G6 nations who were supporting their banking systems are likely to find out is that it just creates a fear of buying sovereign debt.We have all the banks have learned to trust each other and perhaps the most important one is the third bullet point here, what is the reaction of what I’m gonna call the un-aligned nations.What does China think?What does Saudi Arabia think?What do African countries, South American countries who weren't part of this program think about one set of banks being sort of perpetuated is probably the best word, whereas others aren't?Because surely the goodness, the deposits in some of those countries might say well I’m gonna leave my Kenyan bank for example and put it with a German bank 'cause at least I know the ECB’s gonna keep 'em afloat for the next three years and I’ll worry about the problem three years later.

And I think just like all these other programs there’s always unintended consequences so for example well we have a zero interest rate policy which I regard as a joke.What are the unintended consequences?The unintended consequences are you get no return in a pension plan.Nobody can sell annuities anymore 'cause there’s no return.

I just read an example today where some school board would let the citizens of a particular state purchase college tuition ahead of time.And of course the assumption was they’d get this money, they’d earn this great rate of return on it and they’d be able to fund the children’s education.Well now the guy who was charged with investing the money of course, he’s got an underfunded return and I think it was in Illinois, and they were underfunded by 560 million.Well that’s what a zero interest rate policy does.So I think it’s very important to try to figure out what will be the unintended consequences of this latest central bank bailout of the banks.

I wanna move on now and talk about precious metals.As you're probably aware, I wrote many articles about gold in the last decade and I basically called that last – the last decade Gold: The Investment of the Decade because the price of gold far surpassed pretty well any other commodity or investment vehicle that was available.And when I look at gold the first thing I look at is okay, well what does the supply picture look like and this is the last 10 year supply of gold.And for all intents and purposes the supply of gold has been flattened.And then what I do is I go back to 2000 and compare 2010 and I look at the most obvious changes in physical demand for metals.The first item on the list there is the production which went up; therefore it’s a negative impact on supply demand of 79 tons a year.

Then we have the central banks used to be sellers of 400 tons of gold, now they’re buyers of 400 tons of gold.We have a change in the U.S. and Canadian mint coin sales.We didn’t have ETF’s in 2000.China, which used to consume 207 tons now consumes 700 and I think some people are suggesting it might even be over 1,000 in 2011 and the same thing with India. I can therefore come up with on an annualized basis, a 2,000 ton change in supply demand.In a mining market that supplies 2,700 tons and a total market including recycling that provides 4,000.It begs the question, who’s not able to buy today because these new purchases are in the market and where is the supply coming from?

And perhaps I can explain ite best just by comparing ‘10 to ‘11.In ’10 we had the IMF theoretically selling 400 tons of gold.This year we have central banks buying 400 tons of gold.That’s an 800 ton change in one year in a 4,000 ton market.We’re getting data outta China which suggests that their purchases might be up 3 or 400 tons this year.

So with those two items I can come up with one 1,100 tons of change year over year in a stagnant market that provides 4,000 tons available.Where could the gold possibly have come from?And I have no other conclusion to come to other than to believe that central banks are surreptitiously continuing to lease out their gold.And then when they lease it out they essentially lease it to a bullion dealer who sells it to the real buyer and the bullion dealer owes it back to the central bank who still says they own it but of course getting it back won't be easy because of the shortage.

I’m gonna move on to my next slide and this is an incredibly important slide these days.And the reason it’s important, this shows the gold imports that mainland China receives from Hong Kong.And this date is up to November of this year.And you can see the stunning change in demand whereas most months was below 20 tons, we’ve had a series of month where it goes 20, 40, 50, 60, 80 and the latest month which was November was 102 tons.As I mentioned, the annual production of mines is around 2,700 tons, 350 that’s produced in China; none of it leaves the country.The world has 2,350 tons left to buy which is less than 200 a month and China bought 102 tons of that last month.

Furthermore apparently Turkey bought 63 tons which would suggest well, where would that gold have come from?Where do the jewelers get their gold?Where do the industrial guys get their gold?Where do the coin guys get their gold?Like it just it doesn’t fit on a supply demand basis on a physical basis.And I believe that this – what China’s done is actually one of the unintended consequences of what’s going on in Europe.If you were in China and you're at the People’s Bank of China and you're looking at the economies and the whole goings on in Europe, you see what’s going on in the U.S., which have been the two key investments that you had.

You see the central banks just making money available to any bank that wants it.What would you be doing in the future?Might you decide we don’t wanna buy those bonds anymore?We’re not either U.S. or any European government, where are we gonna put our money?And it looks to me like this is one of the unintended consequences where you force a nonaligned guy to make his own conclusion as to what he should do with his money.And by the way 100 tons is over $5 billion which is a lot of money even for the Chinese on a monthly basis.

I’m gonna move on to my next slide and really this is more for pension funds but you know one of the great failings of the gold market so far is we’ve never convinced the really big investors, the pension funds and endowments and things like that to own gold but there have been two studies come out.The one I’ll refer to most is this one from the World Gold Council that basically said studies were done showing that even a pension plan that had minimal amount of risk should have two or three percent of their investment in gold, medium risk would be four to nine, max risk or high risk would be at ten percent.And just to put that all in reference, the amount of gold in gold stocks that is available in the world’s investment pool today is .75 percent of all assets.So even just to get to two would imply a huge influx of buying in both bullion and equities from that sector.But the work stands up to analysis and I think ultimately the pension fund advisors will have to go there.

The next chart basically shows what happens to gold equities versus gold.You can see that when gold moves up the equities normally, well at least double the performance of gold and that’s what we expect to happen if this gold and silver rally continues.Now one of the unusual things, sorry I haven't moved my slide for you.One of the unusual things is that I consider gold companies as their growth stocks.

And why do I think that?Because most of them have plans to increase their production.And some of them are stunningly large increases as I’ve noted on this page.You get three year growth rates of you have anywhere from 50 to 250 percent.And I would suggest to you that most big companies cannot grow like that.Furthermore if you look on the next slide, we see what the earnings impacts are of these kinds of production changes and there’s no way that major companies have that option.And I would suggest that you know, most of the S&P 500 or the Dow 30, I mean they’re gonna have a tough time growing if at all, particularly kind of economic environment I see.

But I think the gold and silver producers will always find a buyer for their product. I can’t say that about a steel mill or some guy purchasing a commodity, a consumer type of product because a consumer’s under the gun here as his income’s going nowhere and his expenses are going up.But gold companies on the other hand can grow their earnings dramatically and the gold stocks trade at very, very low values versus that earnings decline.So as far as I’m concerned it’s a growth industry and it will probably outgrow every other industry and the multiples are very modest.

I wanna talk about what I hope that – when this decade finishes I’ll put in a book all my articles on silver and we'll call that what will be the investment of the decade. And I’m sure many of you who obviously must be sts of the silver market, you're very aware of what happened in 2011.We had these two huge declines over very short times. We suspect that basically it was people who were caught short who were very, very large dealers who took advantage of the leveraging in the ColMax and basically organized these raids on the silver market.And I mean I don’t – I can’t prove it to ya but on the next page we have a quote from Bart Chilton.

It says, "Silver markets have been subject to repeated attempts to influence prices," according to Bart Chilton, Commissioner of the CFDC. In a statement released and he said, "There have been fraudulent efforts to persuade and deviously control that price. Any such violation of the law in this regard shall be prosecuted." There have been lawsuits filed re: 2008 trading accusing JP and HSBC of manipulating the price of silver. They've not gone to court yet but the docs are available.And it has been suggested that those two groups were the largest – had the largest short position in silver. When the price got to $49.50 the losses were almost becoming unimaginable even for those large organizations and we surmise that the only one that would benefit from that kind of a takedown would be the short sellers.

A few more comments on silver manipulation. In the first bullet point when the price of silver got to $49.50 we traded 1.1 billion ounces of paper silver. The amount of silver available for investment in the day, for investment, is only about a million and a quarter ounces but we traded 1.1 billion.And you know most people say “Well, what were all the speculators thinking?” And I ask you to put on a different hat and say, "Well what were the sellers thinking?"

Here's a guy or a group of people selling a billion ounces of silver who don’t have a hope in hell of sourcing it cause we only produce 900 million ounces a year. It's totally out of relationship to what really should be going on in the silver market.So you know when we look at these things we have to say – in fact we shouldn’t even allow that kind of trading. It just – trading in those markets should bear some relationship to the real world and unfortunately it doesn’t.

Okay, now I wanna talk again about the silver fundamentals in terms of physical supply and demand and I've shown what's happened to production over the last ten years.And as I move to the next chart I just wanna do the same type of comparison with silver as I did with gold but I’m gonna use '05 as my starting point.And again we've had 90 million ounces in – we have a 900 million ounce market effective. We have a 90 million ounces of more production, therefore that's a negative to supply and demand. We do the U.S. mint sales, the Canadian mint sales. We do the ETF's which didn’t exist in '05, what their impact is per year – again the net out on china, what they did in '05 versus what they do in '10 and of course the U.S. government which at one time I think had something like four billion ounces of silver that they sold over a 40 year period. They were selling 100 million ounces a year.

So again, I can identify 380 million by going to 6 sources, just 6 and find a 380 million ounce change in a 900 million ounce market. It begs the question, where could this silver possibly come from and of course the paper guys have a lot to do with delaying the ultimate physical shortage that's likely to take place here, plus there may be some selling from inventory but as far as I’m concerned almost every data point I see tells me that there will be a shortage of silver.And why do I think that? It's because fundamentally I think the price of silver, which historically traded at 16 to 1 and is available in the crusts of the earth at 17 to 1. That's where the price should be and yet the current price is something like 54 to 1 and if you reverted to 16 to 1 on the price of gold, it was 1,600; you'd have a silver price of $100.00.

And now to the points of why I think it's logical that we're gonna go there.And the biggest thing is if you look at the gold that's available and characterize it in dollars and look at the silver available and then put it in dollars, the ratio of dollars of gold available versus dollars of silver available is something like 88 to 1. But when I watch what people do with their money I see a totally different development.And I’m gonna use five proxies to show you that.The first is the spider gold trust versus the i-share silver trust and the i-share silver trust has a shorter history.

But for every $6.00 in gold there’s $1.00 in silver.Mint sales in the U.S. last year, for every dollar of gold there was a dollar of silver.Maybe I should put it the other way.For every ounce of gold were 55 ounces of silver.When we did our – the IPO of our gold trust we raised 440 million.When we did the silver trust we raised 550 million.

A company called Gold Money that many of you might know that’s on the Internet, their sales of gold and silver are just about equal and I’m unofficially I think the Royal Canadian Mint’s about 1.5 to 1.And all I can suggest to you is if people keep buying gold and silver at a 1 to 1 ratio, there’s no way in this earth that the price could be 55 to 1.In other words you're buying 55 times more silver and even just the relationship of silver to gold, there’s 80 million ounces of gold available per year.There’s 900 million ounces of silver.That would imply something like 11 to 1 ratio but half the silver’s used in industry.So it really is something like 5.5 to 1 is the ratio of what’s available and yet the prices are trading at a 55 to 1 ratio.

I wanna do the same analysis with silver stocks here just showing what kind of growth rates you can have in production.And at the same time showing what the earnings per share growth could be.This is all assuming a static price of silver by the way.But again I regard these companies as growth stocks.I would much rather pick them than anything else that was out there becausemost other things out there I fear for the growth, in fact I fear the growth would be negative.

One of the things that’s happening and I don't think many of us realize it but we are undergoing a great wealth redistribution and it’s pretty easy to show that just by showing what the UE index which is the unhedged gold miner’s index has done over the last 11 years versus what the S&P has done.The S&P’s done nothing and the UE index is something, up something in the area of 1,600 percent.I mean that is a wipeout and not many people participated in it.And I wanna show you now some of the charts of if you were in the banking sector, what you might – what might have happened to you in the last four years.And the first one is UniCredit that’s gone from 65 to 3.

We have a Bank of America that’s gone from approximately $55.00 down to around $6.00.We have SocGen that’s gone from 160 down to approximately 20 and you know, the percentage losses on these are just callosal.The charts tell you what’s gonna happen.You can’t have a chart go down this much and think that this company could possibly survive.And look at the losses of market cap.You know lost 46 billion of market cap with SocGen.We lost 172 billion market cap with Bank of America and we lost something close to 100 million with UniCredit.I mean the losses are absolutely staggering.Imagine if the money that lost in those things hadda gone into goal where the price would be.

On the next chart we show the outperformance over the last five years of gold versus the bank index.It’s just stunningly different.And that’s why I call it the great wealth redistribution.Gold – I have commented very often as I think the market has made gold the reserve currency.It’s outperformed every currency out there.

The only fortunate thing for currency is they get to compare themselves to only each other.And you know one time the Euro looks good and then the dollar looks good and the yen looks good or the pound looks good but the fact is that we have massive money printing going on in all countries.We have declining standards of living.We are in a very difficult financial position with all those currencies and I think gold has proven already that it’s the ultimate currency.It hasn’t been fully manifested in the central banks and governments believing it but I certainly believe that to be the case.

So basically the recommendation is to stick with gold and silver and their related equities.Notwithstanding having had a very difficult year in silver and in the equities this year in ’11, I think that ’12 should be very, very promising.We’ve started the year off with a pretty good rally.We can still see all the data is supporting the physical demand supply equation that we were witnessing.And just as a last comment the Sprott – I encourage you to visit the Sprott money virtual booth where we basically sell gold and silver coins and I think you would find the offering rather interesting.Thank you very much for your time and listening to the presentation and certainly I wish you all good luck in your investing in the current year.

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To listen to the audio and view the slides associated with the presentation, please attend the conference here.