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Sustained Movement Means High Optimism for Gold and Silver Investors - Weekly Wrap Up (July 31, 2020)

Sustained Movement Means High Optimism for Gold and Silver Investors - Weekly Wrap Up (July 31, 2020)
By Craig Hemke 13 days ago 106016 Views No comments

July 31, 2020

Despite a pullback this week, precious metals are wrapping up one heck of a month—and the future looks even better. How good will it get? Host Craig Hemke and legendary investor Eric Sprott break down all the gold and silver news you need to plan for the months ahead.

In this edition of the Weekly Wrap-Up, you’ll hear:

  • What will drive gold even higher
  • Why everyone is scrambling for physical metal
  • Plus: will silver reach $50 per ounce?

“It’s just been remarkable watching what’s going on with the precious metals. I’m still questioning the whole financial market and what’s going on here with stocks and bonds and threatening to have negative interest rates. The whole Covid-19 thing… it’s almost a mystery to me now how Sweden, who never locked anybody down, their death rate’s almost nonexistent. Go figure. I don’t know how they did that as successfully as they did. And yet we have many, many countries, including the U.S., where the cases keep rising. So somebody seemed to know how to do it right and most of us did it wrong.”

Listen to the Weekly Wrap-Up on: iTunes SoundCloud Spotify YouTube

Sprott Money News · Sprott Money News Weekly Wrap-up - 7.31.20

About Sprott Money

Specializing in the sale of bullion, bullion storage and precious metals registered investments, there’s a reason Sprott Money is called “The Most Trusted Name in Precious Metals”.

Since 2008, our customers have trusted us to provide guidance, education, and superior customer service as we help build their holdings in precious metals—no matter the size of the portfolio. Chairman, Eric Sprott, and President, Larisa Sprott, are proud to head up one of the most well-known and reputable precious metal firms in North America. Learn more about Sprott Money.



Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found atTFMetalsReport.com, an online community for precious metal investors.


The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use. You may copy, link to or quote from the above for your use only, provided that proper attribution to the source and author is given and you do not modify the content. Click Here to read our Article Syndication Policy.

Transcript

Man: You are listening to "The Weekly Wrap Up," on Sprott Money News.

Craig: Happy Friday to everybody at Sprott Money News, sprottmoney.com. It is Friday, July 31st, 2020 last day of the month. Gonna paint the monthly charts today and it's time for your weekly wrap up. I'm your host Craig Hemkie and joining us of course, on this fine Friday morning is Eric Sprott himself. Eric, happy Friday.

Eric: Hey, Craig. Good morning. Happy Friday to you too. Lots to go over and what an exciting month, what an exciting year to date.

Craig: Yeah, that was one heck of a month that we're putting to bed today. If we could do that again in August, we'll be doing just fine. And we've had a lot of fun, obviously, this month, a little bit of a pullback this week, but that's fine, we haven't seen this kind of optimism and sustained movement in gold and silver for quite some time. If you're looking to invest right now, the bestsellers at Sprott Money have been gold and silver. Canadian maples are beautiful. If you're looking for a bit of a price break, check out our random year, silver maples online at sprottmoney.com. They got a little bit lower premium than the 2020s right now and they're moving pretty quick. So check us out at sprottmoney.com. Of course, you can always call us as well at 888-861-0775. Those silver maples even on the paper markets are up about 30% month to date, Eric. It's been a heck of a month and a heck of a week. What are your thoughts here on this July 31st?

Eric: Yeah, it's been great. I actually bought some silver maples this last week and of course, I bought lots of silver thousand-ounce bars earlier on, and it's just been remarkable watching what's going on with the precious metals. I'm still a little questioning the whole financial market and what's going on here with stocks and bonds and threatening to have negative interest rates. The whole COVID-19 thing is just almost a mystery to me now how Sweden who never locked anybody down their death rates almost nonexistent. Go figure. I don't know how they did that as successfully as they did and yet we have many, many countries including the US where the cases keep rising. So somebody seemed to know how to do it right and most of us did it wrong. So that's I think extending the economic weakness here was horrible that we had another 1.4 million people claim initial unemployment claims. I just don't know how long this is going on here, but it's not constructive.

I guess the only thing we have going for us at the fed basically put out the whatever it takes sign and it looks like they're going to just stand in there and do things. And of course, the treasury looks like they might stand in there and continue to do things. So they will use that to support the financial markets. Unfortunately in supporting the financial markets, it's having a negative impact on the dollar, which has done trading in the 92s now. I think 92, 82 was the last court I saw this morning. It's come down pretty sharply here. And I don't ascribe the dollar going down to the strength in gold. I think it's more of the whole manipulation thing which we can get into in a moment.

But some people, of course, look at the dollar and in fact, I think I said last week that the Forex guys a lot of them think of gold as a Forex instrument. And as they're seeing the dollar go down, they're buying gold contracts. And the bond guys that are getting paid nothing, like half a percent of them, they're buying gold to give them diversification. And some equity people who fear that the values are extended, they're also buying gold. So we have a lot of constituents buying gold here, and then I think will continue to buy it.

Craig: Yeah and we should mention too because that's kind of a generalist notion that gold only goes up if the dollar goes down. There's so much more going on there. The fed announced this week that they're gonna do whatever it takes, like you said but, you know, a lot of folks are expecting maybe by this fall, they're gonna put out a thing that says, "Well, we're gonna keep interest rates extremely low and we're gonna let inflation run hot," which means negative real rates are going to get deeper and deeper and that's probably, what's gonna drive gold higher and higher. I'm sure you watch that too?

Eric: Well, that certainly seems to be playing out. I mean, the tips keep rallying because people think that these are the inflation-protected U.S. government bonds. I think that inflation is gonna rise here. And I think that's a very logical thing. We have such a disjointed economy that thinking at a whack in their hurry here. You know, with shortages of things and us not producing things because we're sitting at home. So whether it's food or energy and let's face it, energy had a bit of a run here. So there's definitely cost going up. Some of the restaurants when they opened here in Toronto, I can't believe how much they've increased the prices of a meal, it's been shocking. And a lot of people have these COVID surcharges and things like that. So it's not getting any better for the average guy, for sure.

Craig: Yeah, you know, let's talk about physical demand too, Eric because that goes up with price. I don't know about you but when we start putting a two on the gold price, that's really gonna get a lot of attention and if we get a told up there, I think price could move up pretty quickly. You see what's going on in the Colmex, can you address? Well, we can know what we've talked about every week, it seems the delivery issues on the Colmex that the ETFs everybody's scrambling for physical metal?

Eric: Yeah, and that's how it's been stunning, the silvery ETF. I know yesterday, they put on about seven million ounces. I keep mentioning, we just produced a little over 2 million a day, and most of that's supposed to go to industrial users not the ETFs, so there's a squeeze going on there. We had the August contract expired and first notice day was overnight and there's 47,000 contracts standing, which is about 150 tons of gold and that's a record high that's standing for a month. We've had constant demand almost every day in Colmex for increasing the amount demanded for delivering day by day by day. So for example, the day before yesterday, that day there was only one day left in trading and somebody came in and bought 823 contracts of gold. You know, that's like two and a half tons for immediate delivery. Like it's just crazy the demand for the physical product here.

A lot of people might wonder, "Well, how is it that we had this massive volatility in gold and silver on the Colmex yet there's this consistent, underlying demand?" And I would try to explain it this way, I think that the commercials who are short gold and silver... I'll focus on silver more than anything else, and they're short, like, 900 million ounces of silver. They can on an intraday basis cause prices to go down quickly. We saw it earlier this week in silver where it fell about $2.50 or $3 even in about a four-hour period. And you keep wondering, "Well, what is that all about it?" What I think it honestly is, is these people are short and the big picture in shorting is this silver in my mind has been manipulated for a long time, decades. And it's always the same guy selling, commercial banks selling, same commercial bank selling all the time.

And then finally these commercial banks realize, "Oh, they're asking us for delivery. What are we going to do here?" And of course, if you can imagine that one segment of the financial business with shorting a commodity, and now that segment has to become the buyer, who's the seller? There never was a seller of that kind of quantity. So now they're short 900 billion ounces. There's nobody's got 900 million ounces to sell, so they're going to have to buy it back. So what they do intra day because a lot of people put in stock losses on commodity trade, they run the stops so they drive it down two dollars. Lots of people have stock losses after a dollar or maybe after $1.50 and meanwhile, they pick them up.

But even with that, the open interest is hardly declining. In fact, it's gone up almost every day. I think maybe one day in the last ten it's gone down. So these guys in my mind are hung. We see the SLV buying, the ETF buying. We see the constant every day, somebody wants to buy more silver, more gold on the Colmex.

The Chinese will no longer let their citizens buy gold coins because they were afraid they were gonna rush in and drive the price higher. That was just something that came up a couple of days ago. And of course I'm thinking, "Well, maybe they're stopping their citizens from buying it because they want to buy it. And between the two of them, they could drive it crazy." And it's obviously already being driven crazy. But the whole physical story, and the reason we got here, which is well-explained by GATA and other commentators but GATA is the one who's really been in front of this and Ted Butler has been all over it. That's really the big story that we... The manipulations over. The guys are hung out to dry here and I honestly think that silver could be at $50 very, very soon, like literally in two or three months, that kind of thing. We'll stand by and see.

Craig: Wouldn't be unprecedented. And again, gold move very quickly once it gets a two on it. That wouldn't surprise me either. And we should mention at a time like this, it's good to remember GATA. And for those folks out there that are maybe new to these podcasts or haven't followed the sector much before the gold and trust action committee run by Bill Murphy, Chris Powell, they've been at it now for geez, Eric, what 25 years?

Eric: Twenty years, over 20 years, yeah.

Craig: Please go to their site GATA, Gata.org and you'll find all the information there and support them in their efforts. They've been fighting the fight for a long time and they deserve our respect and support.

Eric, before we get to some of the specific shares, just in general, we're getting into earning season. A couple of companies report that the next two weeks are going to be very busy. Are there some things folks should watch? Do you just kind of watch the big ETFs to see how the shares in general are moving or what will you have your eye on in terms of earnings releases these next couple of weeks?

Eric: Well, I do try to look at all the earnings releases. Now they're coming out in a torrent and it's hard to look at them all. There's been a couple of report today that I haven't had a chance to look at. But Nico reported yesterday, pretty good numbers. But still it's trading at about 50 times earnings. Kirkland reported, they reported... And the earnings that you look at is what's called the adjusted earnings per share not the gap reported earnings per share because it's the adjusted debt is what the analyst would use. And in the case of Kirkland, they reported, I think it was 79 cents of adjusted earnings for the quarter. Let's just make it 80. It's kind of 320 annualized. And then you also look at the average price received in the quarter. They received $1,716. So we're more than 250 higher than that already.

It's easy for anyone to multiply the 250 times the million and a half ounces that Kirkland is producing to see what the change going forward pandering should be and it adds up to around an extra dollar a share. So I'm pretty certain that we'll be looking at $4 next year, other things remaining the same, right? But of course, our own view is they won't remain the same, that the price of gold will go higher here. Kinross reported a decent quarter which I think it's only trading at 20 times earnings. There's a couple other ones on the whole. I think a new, I think Newmont reported as well. I'm trying to remember what the earnings number was, but I think it was trading around 40 times earnings, something like that. So there is there's some that are gonna look very inexpensive. We've mentioned them before things like a Jaguar, Gran Colombia. I think Carrara will look cheap on earnings. There'll be many, all the smaller companies will look incredibly inexpensive on an earnings basis. And of course, they all have more things to come because the price of gold and or silver has gone up.

Craig: Yeah, you know, and Eric, we might just mention again for folks because you've talked about this several times in the last few months. As price goes up, you're shifting your focus as to the type of company that you want to own. You know, we had some people write in this week say, "Eric keeps selling Kirkland Lake, does he not like it anymore?" And you've explained that in the past why you're shifting your focus. You had a great example last week with, I think it was Discovery Metals with a billion ounces of silver or whatever, and you could easily look at it and say, "Well, silver goes up $3, that's $3 billion." Can you explain, I mean, that's a real basic example, but can you explain that again for folks how, you know, you're shifting your focus?

Eric: Sure. Well, of course, I'm a speculator, okay? And I take risks but I take what I consider very, very measured risks. Like lots of people would have figured I was an idiot to buy Jaguar when it was eight and a half cents a year or so ago. Well, I figured, "Hey, the price of gold goes up, these guys produce whatever, 80,000 ounces, there could be a big change in the earnings like for this company." And they've done it from example, making nothing, in fact, losing to making what looks like about $60 million, $70 million a yea. That's before the recent increase in the price of gold. So, you know, the stock goes from, I don't know what the market cap was back then but it's probably $25 million has gone to over $400 million, I think.

Well, there's a lot of torque and things like that where you can kind of see something happening and have it or imagine it happening. I mean, I guess imagine is the better word. You never know that it does happen. But if you imagine that gold is going to go higher... and I mean, I have not really focused as much on where I think the gold price is going as I focused on the silver price. And I think there's more torque in the silver price and it's one of my favorite things. I'd much rather go to where the return is outsized. So the things are outsized, is people have big oil reserves, they benefit more by the price going up than the guy with not so big oil reserves. Guys that used to have high-cost mining operations benefit more than a guy with a low-cost mining operation because the price change causes his earnings to increase many fold. So that's what I tend to look at something where the earnings can change dramatically or the valuation in the ground can change dramatically. And of course, I lean to silver because I see more dramatic increase in the price of silver than I do in gold.

Craig: Yeah, all right. I do want to thank everybody for writing in this week. We're always happy to take suggestions and questions. You can send them to us at an email address. The word submissions, submissions@sproutmoney.com. So many to go through this week. We tried to look at all of them and I know Eric's got a few he can pick off. Eric, before we get to that, anything else you want to discuss? I know maybe again, those great drill results and earnings at Kirkland Lake. Anything else on your mind?

Eric: Well, one other thing, I think you had a question on some listener asked about market cap versus price and a lot of novice investors look at the price of one versus the price of another without realizing they have totally different capitalization. One guy might have a hundred million shares, outstanding another guy has 500 million shares outstanding. You have to multiply the price times the shares outstanding to see what the company's being valued at.

And I know every time I start looking at a company the first thing I say is, "What is the market capitalization? Oh, it's a 100 million. Okay." Once I know it's a hundred million I could put it in reference. Well, you know, if the guy's producing a hundred thousand ounces and he's marking it up to a 100 million, well, I already think in my mind, well it should be trading at 500 million right off the bat or if it's trading at 500 million on a guy who gets 50,000 ounces of production, I said, well that's not cheap in my mind. And that's the... You always have to work with a market cap in order to determine the appropriate valuation.

Okay. So we got some stock to talk about. I talked about the Kirkland Lake earnings. Kirkland Lake had some thrilling now. Here's an interesting, they came out with a hole down in this one down was 976 grams over 7.4 meters. Now, folks, normally if you had nine grams over 7.4 meters, that would be considered good. This is 976, a 100 times better, a 100 times. Now it's in this swan zone, it's just increasing the size of the zone. They haven't found a new swan yet, but they've also announced they had drove results at Robbins Hill, at Perrier and Signet and a few other places, some of which are giving you a sense that they could find another swan, but they haven't found another swan yet. But the stocks, I think probably gonna get the new record high here today. So it's done very well.

I gotta mention Tudor who brought us some drill results. Now they had a drill hole that was what do we got? 1.16 grams over, I think it was 983 meters. Now 983 meters is a long distance. Like the last hole was 7.74 meters. This one is 983, okay? So with a stunning hole, they also did a 150 meters step where they hit a zone that they hit the previous year below two other zones and they doubled in size from 223 meters to 500 meters just under a gram per ton. But it looks like that ore body. I mean, I don't have any trouble coming up with 20, 25 million ounces today. We're still stepping out here and each step out could add potentially 15% to 20% to that total and that's presumed we don't get even for the depth. They haven't found the bottom, they haven't found the sprite length yet and I don't think they've necessarily defined the width. So it's kind of a wide-open project.

And they've got other structures on this same property that might have the same sort of things as the gold storms on, which is what I was just referring to. So this could get very, very big stocks as well. A company called Tutan [SP] was 20% of it as well, I bought a piece of that this week. I still like Tutan of value respective it's a better value than Tudor. Tudor's incredibly cheap but in my mind, Tutan is the cheapest.

I bought into another play over in Mongolia of all places and I normally don't invest much outside of Canada. But I bought a company called [inaudible 00:20:43.536] and I didn't really buy it for these 60, 000 ounces that they're supposed to start producing in about a year, I bought it for the exploration upside. As it turns out, Mongolia has been a great place to find gold. The oil told guy deposit has 60 million ounces in it. Sentara is over there with a mining operation, has been lots of gold found in Mongolia. You always take the risk because it's a country that you don't well understand. But they just had an election where they brought the government back in that seems to be acceptable to gold mining. So I like the prospectivity of Ordean finding significant things in Mongolia.

I'll mention core mining again. They announced some results from their property in BC. They have two properties. One is on the northside of Spanish Mountain and one's on the southside of Spanish Mountain which is another company we'll talk about it. And they think they've got something like 80 to 100 kilometers of strike there. It's in the Caribou region of British Columbia. They had the drill results out where they had 10 grams of over, I think it was 11 meters in some drill holes on one of their property there. But they have what hopefully looks like a district kind of play here. And they also have a district play down in California. So it's one where, you know, it's a bit of a dice roll but it looks like it could come up pretty interesting for us.

The two other ones I'll talk about, and these are both the companies that had large resources that were very cheap. The first one is Spanish Mountain. Back in I think 2011, they mentioned they had 10 million ounces of low-grade gold. But that 10 million ounces is coming back on the playing field here. I'm not even sure what the market cap is today, I think it's around 120 million. But you're not paying a lot for those ounces. And I just got involved in the funding and they'll be putting that money in the ground to hopefully expand that 10 million ounces.

Free Gold Ventures announced that they have drilled four holes but they don't have any assay results. As I've mentioned before, if some of those holes start hitting what they hit in the first hole that they got a full assay on it, it could get big, big, big in a hurry. So that's essentially what is on my mind this week.

Craig: Man, I tell you what, it is an exciting time to be in the sector, no doubt about that. I'm watching prices as we've been discussing things this morning. They've come down a little bit, but silver is still up about a dollar on the week and gold is up about $70 on the week and that's not too shabby. And again, remind everybody that this is the last day of the month and those monthly charts are important. And so if you want to take some time this weekend, pull up a monthly chart especially on spot gold and you'll see that maybe we're onto something here. Eric, anything else you want to cover before we wrap up?

Eric: Well, just one last thought. You know, that the OTC markets in Europe the month ends today at 10 o'clock Eastern time. And I only say that because these guys are like running the prices down for when the thing is and I think everything's valued at whatever the closing price is a ten o'clock.

Craig: Ten o'clock New York time, yeah.

Eric: New York time, yeah. So of course they'll try to get it down to a very low price for that time. So we might see a little bit of weakness here as we're seeing right now as we're recording this and maybe through ten o'clock. It'll be interesting to see what happens after ten o'clock because you know, somebody might be manipulating the price.

Craig: That's right. Yeah, thank you for pointing that out. It is the last day of the month. The options that are priced and valued on the OTC in London are based off and priced off of that final AF PM fix in London, which is three o'clock London time, ten o'clock Eastern. That's about a half-hour from now. So, you know what, for everybody listening to us today let's just see what happens to prices once we get past ten o'clock Eastern. Maybe things will pick up a little bit. So thanks for pointing that out.

Eric: Yeah put in your bio at 9:59?

Craig: Exactly, that's not. That's usually a pretty good strategy that's for sure. Well, all right, my friend. I appreciate all your time. I think we've covered about everything, but I want to double-check one more time to make sure we didn't miss anything.

Eric: I think we got it all. It looks it could be a great week here.

Craig: Yeah, and we've got it all at Sprott Money, how you like that? Like that segue, Eric. Hey, again, if you're looking to invest in the precious metals and if you want to buy in size and you're thinking, "I need a place to store it," Sprott Money is the place to do it. Again, we've got great prices on gold and silver, Canadian maple leaf coins which are just beautiful if you've never held one. Check us out sprottmoney.com or of course call us 888-861-0775. Eric, again, great week. We'll see what the month of August holds. I hope you have a great weekend.

Eric: All the best to you too and our listeners.

Craig: And from all of us at sprottmoney.com, thank you for listening. We'll talk to you again next Friday.

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