Sprott Forecasts S&P Crash As Investors Pay Premium For Gold Trust (PHYS, GLD, XRA, PAAS, JAG, AUY, KGC, MVG)

When it comes to equities, few are more bearish than commodity hedge fund manager Eric Sprott, who last month told Bloomberg the S&P 500 will crash through its 2009 low at the 666 mark in the next year. In anticipation of the continued drop, which Sprott says his firm first identified in 2000, he is piling up gold bets among Sprott Asset Management’s top-15 U.S.-listed equity holdings, among them his own Sprott Physical Gold Trust ETV (PHYS).

MarketWatch identifies some key differences between Sprott’s closed-end physical gold trust and the massive SPDR Gold Trust (GLD), which has gained the favor of billionaires John Paulson and George Soros among others. According to the report, Sprott’s trust is unique in that investors whose stake represents enough capital to purchase a 400-ounce gold bar are able to redeem their ownership in the trust for delivery of the physical metal on a monthly basis. Meanwhile, since the fund’s assets only grow via secondary offering, ownership represents somewhat of a call option on physical gold delivery — and investors have paid up to a 10% premium for that option.

Today the Sprott Physical Gold Trust is lagging the metal’s rally, as well as select components of the Gold and Silver Stocks Index, where Exeter Resource (XRA), Pan American Silver (PAAS), and Jaguar Mining (JAG) are soaring by more than 4%.

At the end of the first quarter, Sprott’s hedge fund had positions in Exeter and Jaguar, as well as Yamana Gold (AUY), Kinross Gold (KGC), and MAG Silver (MVG), among other miners. It will be interesting to see if his uber-bearish outlook for stocks is on target, or if his sentiment is merely wishful thinking for his gold saturated portfolio.

Tags: AUY, GLD, JAG, KGC, MVG, PAAS, PHYS, XRA