“It’s a problem that’s not going to go away.” - Eric Sprott on debt - Weekly Wrap Up (August 10, 2018)

Transcript:

Announcer: You are listening to the "Weekly Wrap-up" on Sprott Money News.

Craig: Well, greetings once again from Sprott Money News and sprottmoney.com. It's Friday, August the 10th, 2018. This is your "Weekly Wrap-up." I'm your host, Craig Hemke. And joining us, as usual, is our good friend, Eric Sprott. Eric, happy Friday.

Eric: Hey, Craig. Good morning. Lots of strange things going on in the world but we're getting used to it. Gold hasn't had much of a week but it's hanging in here pretty well.

Craig: That is true. It is, at least, hanging in there, and now, that's at least offering some hope. And I want to point out something before we get going, we have something rather unique at Sprott Money this week, it's a very exciting offer, it's something that is out of stock, I guess, in a lot of different places, but you can find at Sprott Money. We're talking about the 2017 Special Edition one-ounce Voyager Silver Coin, and it's on sale, and it's hard to find. So please call us at 888-861-0775 or go to sprottmoney.com for more info. This is available for both Canadian and American listeners. And limited quantities are available. Again, a one-ounce Voyager Silver Coin. Those babies always go fast. So please, check them out.

Eric, as you mentioned, the price of silver is trying to stabilize here as is gold. What are your thoughts at this point?

Eric: Well, there are some very interesting developments going on. And probably the most important one from a gold perspective is what's going on in the foreign currency markets, particularly in Turkey and Iran, more particularly Turkey because the Lira is just getting decimated here. And today, the ECB came out and said, "Yeah. Maybe some of these banks in Europe," and they mentioned the names of three banks. I think BNP was one of them, I'm just not remembering the other two banks but, and they said that you know, they had some Turkish loans. And, of course, as the currency goes down, the ability of those, the people in Turkey to pay those loans back with a depreciated currency, is it becomes very difficult. So I think that's a very gold-positive development.

And, of course, we have the stocks in Europe, particularly, bank stocks are weak. And we're going to have a weak opening here in North America. And I think it's all on the back of, well, you know, these are unsettling things that when currencies fall by 50% in the short-time, both in Iran and Turkey, and, of course, we had the same thing in Zimbabwe, and Venezuela, and many other places, where the currencies are just getting trashed. And, of course, that's always very, very positive on a very long-term basis, in gold. So there's some encouragement coming from that side.

Craig: Yeah, Eric. It is reminiscent, eerily reminiscent of where we were exactly three years ago. You know, the Dollar had rallied in 2014, it put a lot of pressure on the emerging markets. China began to devalue the Yuan in the summer of 2015, only by about as maybe half of what they've devalued this year. And all of a sudden, in August of 2015, anybody can go back and look this up if you don't remember, the stock market in the U.S. fell about 6% in a week, and the following Monday, they could barely open the darn thing, because everything was getting marked limit down all because of that emerging market currency stress. It seems déjà vu all over again a little bit, doesn't it, Eric?

Eric: Yeah. Well, there's lots of turmoil out there. You know, the debts don't go away, right? They don't go away, they have to be paid, and the cost of the debt is going up because of interest rates rising here so it just puts a greater, greater strain on all forms of GDP because a greater part of your GDP has to go to debt repayment. So it's a problem that's not going to go away.

And, you know, we've always speculated when is it finally going to have an impact on stock valuations and it hasn't yet in North America for sure. I would suspect it's kind of had some impact obviously in places like China, and European equities, and other Asian equities. So I think it's probably likely they haven't...it's going to have an impact here in North America as well.

Craig: Yeah. And as you mentioned, if you're a Turkish citizen and the value of your Lira and your savings in Lira is declining, that might lead you to buy more gold. And they're already buying a lot, as are the Indians, and the Iranians, and you go around the world. Hey, I had an interesting number I saw this week, the finalized numbers for 2017 gold production came in. And the entire world produced about 3,200 metric tons but about 600 of that never left China or Russia. So really total production is about 2,600 metric tons. We know about 1,000 got soaked up by India. It sure seems like a rather tight physical supply, doesn't it?

Eric: Well, you know, I've always looked at the annual gold mining production, and then I look at the statistics for consumption, and I always start with China, with the 2,000 tons this year, India is 1,000 tons, Russia's 180. Well, I've almost come up with the 3,200 already, okay? I haven't even included any ETF purchases, which were quite meaningful. And, of course, the other 192 countries that I haven't brought into the equation.

So, in my mind, the demand for gold has always been in excess of the physical supply, and the central bank surreptitiously keeps supplying the market, so I'm very dubious that the U.S. owns their 8,200 tons. And certainly, when I see exports of gold from England over to Switzerland, and England doesn't produce any gold, where's that gold coming from? You know? So undoubtedly, some kind of bank-related, central bank-related thing.

So and that number, you know, was actually down just a touch from last year, the total annual production. I suspect that that number is going to go a little lower here, too. You know you get comments from these major gold companies all talking about peak gold. So I think from a supply-demand basis, things are very tight. God forbid that we go to the exchange for physical nonsense, that goes on in the COMEX, you know, I think we've had, what is it? 6,000 or 8,000 tons of theoretical COMEX supply then shifted over to UK, the UK for settlement.

Craig: Yeah.

Eric: There's no way it's settling. I mean, those numbers, they're just so astronomical as to be ridiculous when we can point to the physical tightness in the...from what's produced on the mining basis. I mean, I don't know where'd you get the rest of this gold. So somehow, it just goes off into oblivion, you know?

Craig: Right.

Eric: Which makes a bit of a joke of the COMEX, too. And, you know, while we're on COMEX, as you pointed out and other commentators, there's a big, there's I think a record net short position by the speculators here. And that typically has led to very substantive rallies in the price of gold. So from a COMEX perspective, I think, you know, we're getting in better shape every week, and hopefully this week's report, which will come out this afternoon, will continue that trend, and hopefully, the speculators are digging a bigger hole for themselves that, of course, the commercials will feast on. So we'll standby on that.

Craig: Yeah. Just to add some color to that, we will get a new report today. And it should be based on the price change, and the open interest change, and other improvement, as we call it and the COT. To add, again, some detail to that, at present, at least as of last week, the gross number, not the net number, but the gross number of speculator shorts, in both gold and silver, is at all-time highs. And, again, for people that don't follow this that closely, the speculators or the hedge funds and the managed money, they are subject to margin calls in ways that maybe the banks aren't when they're short, right?

Eric: Yeah.

Craig: And so, therefore, it's very easy for the hedge funds and the trading funds to get squeezed. And when they are sitting on a record amount of shorts,that provides in a sense some rocket fuel for a launch, if we can ever turn things around.

Eric: Absolutely. And, of course, the point is that the commercial banks who do, in my mind, operate in concert, have unlimited amounts of resources for this and, of course, the speculators don't. So they got them right where they want them, right? They just move the price around. And, in fact, if they shoot the price up, next thing you know, the COMEX will increase the margins on the contracts, so they got to put up even more money. I mean, when they get them, they really nail them. We have seen many examples of that, where the COMEX itself, as the exchange, it becomes complicit in the whole thing. So they better, those speculators better be careful here because things are tipped against them for sure.

Craig: Eric, we should talk a little bit about what's been kind of a rough patch this week in the shares, not that the last several months haven't been a rough patch, but that some of the shares have gotten worked over this week, too. Do you think it relates back to just a lack of interest in the sector? You've got, you know, as you pointed out a couple of weeks ago, the earnings for a lot of the majors were just awful at $1,300 gold. I mean, what are they going to look like at $1,200 gold? Do you think we're just finally at a sentiment low for people in the...that want to be exposed to this sector?

Eric: Well, there's no doubt that the earnings were weak. I mean, you know, when you have companies like Barrick basically made nothing, Gold Corp. lost money, Newmont's earnings were down. I think it was something like 40%. Like [inaudible 00:09:50] it was down something like 40%. It's hard to imagine with the generals all getting their butts kicked what's going to happen to the indices, right? So I think the indices have, they've come under pressure and the ETFs. And if the ETF comes under pressure, everything comes under pressure, right? Because everything's for sale.

So that's I think been leaning on things to be, "We need the price of gold to recover." You're right. I mean, most guys sold their in the second quarter at around $1,300, while today, we're $1,210, okay? So it hasn't gotten any better. So no, it's certainly not helping here. And some of those companies need some rescuing because their gold production's not going up, and the price is going down, and they're already not making much money. So we have to standby on that one.

Craig: Yup. Well, one bright side and maybe this will be the final point this week. One bright side has been down in Australia in that Pilbara region, Dr. Hennick [SP] had some updates I think earlier this week on what he thinks is how things are shaping up down there. I know you've got some thoughts on that, too.

Eric: Sure. Sure. Well, actually, before I get to the Pilbara, and I will get to it. But one thing quick, we'll have to probably stop having this broadcast, right? Because Alex Jones got kicked off because he believes in some conspiracies and we believe in some conspiracies as well, so I don't know how much longer we'll be able to broadcast this because it seems that somebody out there doesn't want anyone to discuss the fact that things maybe aren't quite as they're stated. And, of course, Alex Jones is one of those guys that would interview people, and pull out the truth, and now, he's been cut-off. So that's very unfortunate.

Craig: Yeah.

Eric: I'm saying that in jest, obviously.

Craig: You never know.

Eric: It's a statement. You never know, right? We got to start watching what we're saying, otherwise, we're gone. The Pilbara, the only comment I want to make in the Pilbara is it would seem to me, and not that Novo is helping the sense of providing any documentation in terms of official results on things, and grades, and recoveries, and all that sort of mining type stuff, but it would appear to me that the guys on the ground seem to be able to more readily determine where things should be. And, of course, they can't officially quantify it under what we call JORC Rules and/or 43-101 Rules yet, but it just would seem that most companies are reporting that they're certainly finding nuggets down there. And I think the whole Pilbara play is coming together here. It's taking way too long unfortunately. I say that, as you know, I'm the Director of Novo. It's been frustratingly long in terms of proving exactly what is there, but I just wanted to remind people I think the prize could be very large here. So you want to be patient because it could be a very large payoff. So those are really my comments on that.

Craig: All righty then. Well, hopefully, the payoff will begin soon, not only for those equities down there in Australia, but every place, it has been a tough 100 days or so. And though it does not yet look like we have turned the corner, boy, with some of the things we discussed, I think folks can see where the corner is, with, at least within sight. To that end, I want to wrap up by pointing out, Eric, one of your favorites that we have discussed before, the Queen's Beast Black Bull of Clarence, remember that one, that gold coin?

Eric: I remember that. Yes. That's my favorite coin, right?

Craig: Yeah. Yeah. Well, we got clearance, Clarence. We got clearance from Sprott Money. We're offering this baby again. Again, it's a one-ounce, it's a whole series of coins, the Queen's Beast Black Bull of Clarence Gold Coin. Man, I got to...I'm just going to have to get one of these babies myself just to say I have one. Lowest price is guaranteed from sprottmoney.com. So for our Canadian listeners, oh, heck, Eric, maybe you're going to have to buy one and ship it to me. You can take advantage of this special promotion. Again, call Sprott Money, 888-861-0775 or just go to sprottmoney.com to buy one online. You got to take advantage of this now before it's too late. So, Eric, come on, you're my buddy. Pick up one of these babies and ship it down here.

Eric: I'll see what I can do.

Craig: Okay. I appreciate that.

Eric: I'll see what I can do. It sounds like a hell of a deal. I better get on it right now.

Craig: Black Bull of Clarence. It's just, I mean, I got to have one. All right my friend. Again, provided that the powers that be do not shut us down, and we joke about that, but you all know that is a very disturbing development, you know, that what is it? Freedom of speech, freedom of expression, freedom of free assembly, all of that is apparently guaranteed in the very First Amendment here to our Constitution but, you know, that's just an old...who reads that kind of stuff anyway? That thing's 250 years old, Eric, nobody cares about that, right?

Eric: Yeah. It wasn't very well thought out at the time.

Craig: No. And those guys were dopes. They didn't know what they were doing. Anyway, my friend, hopefully, we'll be around next week. We'll do this again. In the meantime, have a great weekend.

Eric: Okay. You, too. All the best.

Craig: And from all of us here at Sprott Money News at sprottmoney.com, thank you for listening. Have a great weekend. And we'll talk to you next Frid