TGR: Right now it seems that the metal is outperforming the producers and the junior companies. Do you see that changing?
ES: I would not agree with that. I go back to 2000 when I started buying gold and gold shares and the HUI Gold Index was 35 then. It is about 660 today, so it has gone up about 1200% while the price of gold has gone up some 300%. Since the bottom in October, the HUI has risen maybe 190% from the bottom. I do not know what the bottom of gold was, but maybe it got as low as $650, but the HUI Index has probably appreciated twice that.

A couple of months ago I saw a list of the top 100 performing junior gold stocks since the bottom. I don't have that list in front of me right now and cannot even tell you who did it, but to make the list, a company had to be up 400%. The average was 700%. It was shocking how much some of these stocks went up. You would have to be deep into small mining stocks to recognize the names.

TGR: Does gold have to increase for such stocks to see any more appreciable value or is there more upside for them?

ES: I probably own 25 or more names on that list, and really have not sold many of them. When this list was done, the price of gold might have been $900. Now we are $1,100. I am finding lots of upside opportunities in these small to mid-size gold companies. I have a tough time stomaching the incredible valuations in some of the bigger ones, but I still think there is pretty good value in the smaller names.

TGR: At The Gold Report we don't get a sense that the average investor is buying gold. Is that your sense as well?

ES: Yes, I agree that very few people have gone there. In fact, one of the funny things about the physical gold market and even mining stocks, for that matter, is that there is not a lot of room for everybody. Almost everything is spoken for. It's not as if gold is not owned by someone already. There is very little produced each year.

When I first got into gold, it was suggested there was a shortage of physical gold, and the only reason the price did not go up substantially then was because the central banks kept selling it. Now the central banks do not sell and you have all these new buyers. I have no idea where this gold is physically coming from. Even the array of gold stocks available to the world is not that large. We are very lucky to be based in Toronto, sort of the gold mining financing capital of the world. Everybody in the world of gold tends to come through here. There is not a big sense of gold mining in the United States for sure, but it's quite a topic in Toronto.

TGR: How likely are we to get into a gold mania if indeed people in some countries aren't even talking about it yet?

ES: You just have to watch the gold price. We are probably at a very significant level right now. Finance people looking at it have to be wondering what is going on. I do not think it is a secret now. You can hardly pick up a financial newspaper where they are not talking about the potential weakness of the U.S. dollar.

TGR: As you say here, we're trading around $1,100 as of this interview. What catalyst is going to come up? I clearly think that India stepping up to the plate, making that buy—frankly, I expected China to do it before India.

ES: If the Chinese come in now, we all have a story. I am sure they will, and/or somebody else will. It is not a lot of money—$6 billion or $7 billion is a drop in the bucket for the Chinese. That could happen. I have always believed there could end up being some problems in the physical market some day, regarding the settlement of contracts. We have these huge concentrated short positions in both the silver and gold on the Comex. There was a day when the price of gold went up $25; those shorts lost $1 billion dollars that day—serious dough now. So there could be things happening in the physical markets.

TGR: Speaking of physical markets, where are premiums on coins these days?

ES: On gold coins it's about 6.5% and around 20% above intrinsic on silver. Wafers and bars are obviously less. If all of a sudden there is a run in coins, those premiums can change pretty quickly. It does vary a lot. There have been times when the U.S. mint is on-again, off-again in terms of output. Regardless we have had significant interest in large quantities and we are lucky that we have always had a substantial inventory of particularly gold Maple Leafs. We probably have $50 million of them in inventory at all times, so we're not likely to run out. Besides, we have great supply sources, and we are constantly replenishing our inventory as we sell—regardless of how high the gold price is.

TGR: And considering your Sprott Money Ltd. enterprise, you're clearly a believer in holding the physical metal.

ES: I am. People should want to have their own physical gold and silver. A lot of them take certificates, but I certainly would never advise doing that.

Courtesy: The Gold Report