TGR: One of the holdings that you have, Colossus Minerals Inc. (TSX:CSI), was never mentioned in your all-cap portfolio.

CO: If you look at the Precious Metals Fund, one of the first acquisitions we made when we came over to Sprott was Colossus. I went to Eric [Sprott] and said I was buying it for the Precious Minerals Fund, and he was very interested in the story. So, if you go and look at the annual reports, you will see that we've been a big shareholder of Colossus.

JH: Colossus is an example of what Charles touched on earlier—the very few and far between. A company that we could wrap our head around their geological setting, the historic database and holes being presented, the fact that it was a past producer, etc., and we could get a very good sense even before a 43-101 that this has a large potential of being a mine one day.

TGR: During 2008 you increased your bullion percentage, but I see right now from fund stats that bullion is at 5%.

CO: As we all know, the market was horrible last year. Gold stocks were being treated like any other stock; they were, in fact, probably being treated worse. So we felt that bullion was probably better, and increased the bullion weighting. We actually ramped up bullion from single digits to about 20% when we peaked in November, and that was because we liked the defensive nature of bullion. In retrospect, the bullion held up much better than the stocks, so it was a good thing to do.

As we looked at the valuations last fall, we said, "You know what? These stocks are so cheap it's ridiculous," and we started to reduce our position in bullion and redivest into the market. If you look at what's happened since that point in time, it's been a good call. We've taken our bullion down to about 5% of the fund, and if you look at the stocks, year-to-date, we're up 50%. If you look at gold bullion itself, in U.S. dollars, it's up 5% to 10%. In Canadian dollars, I think it's actually flat to down.

TGR: Well, that turned out to be a brilliant move. Let's talk silver. Many people are saying silver is really going to run up faster than gold due to its increased volatility. Do you have any thoughts on silver, and is it a counter-hedge inflation play like gold?

JH: We like silver. We expect silver to move with the gold price. Obviously, silver is often viewed as poor man's gold. Basically, it's easier to buy in smaller quantities because it's cheaper by the ounce and it's easier to store for the smaller investor.

If we want to look at a cycle and break it up into thirds, during the first two-thirds of a gold cycle, as we see it, silver largely trades as an industrial commodity. But in the last one-third of a cycle, it tends to play catch-up to the gold price and close that silver-to-gold ratio. So, historically, if you go back to 1971 when gold really came off the gold standard and you look at that silver-to-gold ratio, the median has been about 55- or 56-to-1. If you go back to the 1980s, it's hovered around 65- or 66-to-1. We got as high as, I believe, 81- or 82-to-1 in that gold-to-silver ratio, and now we're back down to that 65-to-1 range. So, it depends on your viewpoint of how much movement you see in the silver price going forward. As we see the precious metals or gold price appreciate, we obviously expect silver to move along with that.

TGR: In the last third you would expect it to move faster than gold, but it would really be more of a spike?

CO: If you look at what's happened in the last six months, silver has way outperformed gold. And I would say it's now sort of getting to that point where it's pretty close to fair value with gold under the models we've been running. So I am almost indifferent to owning either gold or silver right now, but silver's momentum from the last six months is probably still with it somewhat. So, it could overshoot to the downside, but, again, I think I am largely indifferent at this current level.

TGR: Are there any other observations you'd like to convey to our readers who are precious metals investors, as we look across 2009?

CO: Last year was very tough—it really took a toll on all of us. I've got scars on my back to prove it still. What I want to say is continue to believe in that higher gold price because that it is going to come. I am still convinced of that. Keep the faith.

JH: I was going to make a comment along similar lines. You know there were a lot of people who, I think, were in a very similar cycle from 1965 to 1984. We're experiencing that again, and we're in the '73 - '76 volatile sideways market. A lot of people made significant money from that first gold move from $35 to over $180 an ounce. And then a lot of people lost the faith during the quantitative-easing phase in the sideways volatile market and got squeezed out of gold. Whether you believe in this conspiracy theory or not, gold was pushed down to $100—or just below a $100—an ounce and missed that last euphoric run from '76 to the early '80s.

So, as Charles said, I would keep the faith; don't lose sight of the larger picture. Don't lose sight of the quantitative easing and the debasement of currencies versus hard assets and real things, and you will do well going forward.

TGR: Very good. Jamie and Charles, I appreciate your time.