“Things Have Changed” in Precious Metals: Lessons From a Volatile Week​ - Weekly Wrap Up (July 2, 2020)​

Male: You're listening to the "Weekly Wrap-Up" on Sprott Money News.

Craig: Greetings again from Sprott Money News at sprottmoney.com. It's Thursday, July the 2nd, 2020. And this is your weekly wrap up. I'm your host, Craig Hemke. Joining us this morning is Eric Sprott. Eric, good morning.

Eric: Hey, Craig. Boy, it's been a fun ride here. I'm sure our listeners have enjoyed pretty bountiful times. And let's see if it will continue.

Craig: Bountiful would be a good way to put it. If you've been listening to these podcasts for the last few months or the last few years, I think you're getting a lotta quality information. No doubt about that. And it's been a very busy last two weeks at Sprott Money as well. So thank you all for choosing us for your precious metals investments. If you're listening and you're new to precious metals, maybe you're unsure as to what to invest in, or you have some questions. Well, we can help with that too. Please give us call 888-861-0775. The Sprott Money team would love to chat with you. We've got a number of precious metals products for purchase. And you can check them all out at the website, of course, sprottmoney.com.

Eric, it's been a volatile week that's finally gonna wrap up today on Thursday, as the U.S. markets are closed tomorrow, with a market holiday ahead of the U.S. Independence Day. We got as high as $1,808 in gold, but now we're back to about $1,768 after the U.S. jobs report. But I think it's probably good to point out that that's about $90 higher than it was last month, early June, when we had a similar jobs report. So, long-term, we're making good progress.

Eric: We've had a good run. And there's still, in my mind, blatant efforts by the commercial shorts to drive both silver and gold down quickly. I mean, it's almost ridiculous how many times it happens. But I will say, including even yesterday, a big decline. Probably, it might have even gone down by 30 bucks from its high. But, you know, it got a lot of it back by the end of the day. And that's the thing that seems to be different these times around, that, I think the buying in the markets, in the ETFs, is relentless, and not withstanding people knocking it down with derivatives, there is some serious stuff going on in the ETFs, which we'll discuss after maybe some other comments about the economy and so on, because it is jobs day, and we had the payroll numbers.

You know, it's...of course, I'm not a great believer in the payrolls numbers that I see. And whatever number it is, I mean, I know it's so brutally awful out there that I can't imagine anyone's supposed to get excited no matter what they report. Because we know there's 20 million people unemployed. And God forbid, if half of them don't get their jobs back, and the way things are going these days, and as I read sort of the headline that McDonalds puts on hold reopening restaurants inside. Well, okay, there's a few people that aren't gonna be hired back for a while.

And as you're experiencing there, you know, these cases just keep exploding. I was shocked to see, I think, the number was 56,000 yesterday. Like, it's obvious that when you don't do the social distancing, you have problems. And I mean, do we have to get all 330 million Americans affected by it at one time or another to get the herd immunity? And so far, we've only got...I don't know how many cases we have in the U.S., is it, like, 2.5 million, something like that. I'm not sure what the number is anymore. But we got a long way to go if we gotta have everyone end up with his thing and survive it. And, of course, I have mentioned before that the morbidity rate is nothing like we thought it was gonna be. It's way better than we ever thought it would be. So, you know, I think we'll see our way through the thing, but it's no V-shaped recovery, that's for sure.

Craig: Yeah. And before we get to some of the physical story with the ETFs, I do think it's worth pointing out, in all the hype about the jobs report today, and 4.7 million jobs or whatever it is, three months since this all began, the U.S. lost, and now they've finally revised the April numbers to 20.8 million jobs. And even in these big surges in May and June, we've put back on 7.4, roughly a third. So, 4.7 sounds good, but we're still down, what is that, 13.5 million jobs. That's a lot that's gonna have to come back.

Eric: Plus, I think there's always funny accounting when it comes to jobs. You know that. It's always been weird. And, you know, they got these weird birth-death models. And I think the important thing is just to watch, you know, the various news releases from various companies. Are they hiring? Are they firing? And make up your mind whether this thing's gonna...whether we're gonna have an economy that could come anywhere near justifying where the market levels are, which I don't tend to believe in. So we'll see how that plays out.

Craig: Let's talk physical metal, because there is sure a rush, whether it's just at the retail level, whether it is the amount of physical metal that now is being offloaded allegedly from the COMEX. Man, the CME really opened Pandora's box there by turning that into a physical delivery vehicle, because it, never intended to be one. Or just all this metal that's flowing into the ETFs. I know you've got comments on all of that.

Eric: Yeah. Well, first of all, let's start with the...of course, it was the big expiring month for silver. And the nominations, I think, were 16,000 contracts, which is 80 million ounces, 55 million deliveries on the first day, which was yesterday, 80 million, just so that the listeners are aware, that's probably a little more than we produce in a month, in the world, mine. So that accounts for all the production for that month. Then let's go to the ETFs. And I have been watching the ETFs very, very carefully, as I watch the COMEX every day now. And the ETFs in the last three days have added 6 million, 7 million, and 10 million ounces in the last three days.

And let's just take 10. We mine, in a day, in the world, 2.5 million ounces. And how long can we keep putting 10 million ounces in the ETF when we mine 2.5 million, and theoretically, 80% of silver production is supposed to go to industrial uses, not investment? So here we have the COMEX loading into silver, we have the ETFs loading into silver. I actually was a buyer of some silver, PSLV, just to get a little more access to physical silver. One of the things that we made a decision, I own the Jerritt Canyon Mine in Nevada. And I basically said, "Okay. Let's stop putting money in the bank here. We're gonna start buying precious metals with our earnings. And we're gonna buy, put half our money into silver and half our money into gold."

And you know what? I would encourage other gold producers, because the margins in a gold company are getting ridiculous, okay? Like, the price of gold is $1,800. If your costs are $900, you got a $900 margin. Well, how many people have 50% margins, okay? So the money's pouring in. And I think the last place you want it is in a bank. You know, I wouldn't keep my money in a bank. Why don't you buy your own product, for God's sake? You want everyone else to buy your product. Why don't you buy it? So anyway, I'm gonna do it myself at Jerritt Canyon Mine. And I will try to influence some of the other investee companies that I own, and see if we can get them to invest in their product. And the funny part would be is if you have $900 margins, literally, you could buy half your production.

So the mines, the mines could buy half their production. Imagine what that would do to the supply of gold on the market, and silver. That'd be crazy. Anyway, all the signs are pointing towards continuing demands for gold and silver. The thing that appeals to me a lot recently is, particularly in gold, almost every day, whatever the spot month is, the amount needed for deliveries goes up every day, even though the month's expired, right? And so I'll get an extra 500 contracts one day and 150 the next day. Somebody is just loading up on physical here. You don't often see people come into COMEX, buy the spot month contract, and ask for delivery. But that's what they're doing. So I think there might be a group that's figured out, "Okay. There's a serious shortage here. Let's go get 'em." So it's certainly manifesting itself both on the ETFs and in the COMEX.

Craig: We've seen a good week in the shares. I think the metals are actually now down a little bit on the week, which is remarkable, given where they were just two days ago. Now, all of a sudden, nobody wants them again, at least the futures contract. But that's all right. The shares are certainly picking up, even though, I'm sure the GDX will probably end up being down today. It's still gonna be up on the week. We're moving back now toward earnings season, Eric. And so interest is picking up again. By later July, first week of August, all of these majors are gonna have great earnings reports. We had one kinda general question in that regard this week. Somebody just wanted to know what your thoughts are on how metals and mining stocks might do if, if, the general stock market begins to correct and crash.

Eric: Oh, right. Yeah.

Craig: Could we get kind of a margin call-related sell-off again?

Eric: Well, we could. But I think that people should be much more prepared now. I mean, we had a number of times the market's gone down 20% in the last two years. And each time, of course, the gold stocks proved to be the better thing to invest in. And of course, you know how many companies and individuals are recommending that, you know, people own gold in these tough times. And the last time that the price broke in the COMEX, the price went up in the physical market, you know, if you wanted to buy coins, which you couldn't buy. So again, it was just this difference between the phony paper market and the real market. The real market, people buy gold and silver when stocks are in a serious correction. So I'm kinda hopeful that having seen how quickly they came out of the trough in March, and how much they've gone up, that we will have a way bigger audience playing the up move here if stocks start heading down.

Craig: Speaking of phony gold, Eric, how about that dude over in China with his 83 metric tons of gilded copper?

Eric: Yeah, yeah. That was absolutely incredible. And I think he had loans of, like, $3 billion, something like that, against his fake gold bars. Yeah, it happens. What can you say? It's not a good thing, because it makes everyone a little jittery, right?

Craig: Mm-hmm.

Eric: You look at your bars a little more carefully these days. Anyway.

Craig: Yeah, you do. Stick with a trusted precious metals dealer like Sprott Money. Hey, you like that?

Eric: I love it.

Craig: Yeah, there you go.

Eric: [Crosstalk 00:12:07] segue.

Craig: Thank you. Well, you know, I'm a broadcast professional, my friend. All right. Hey, let's get to some of these stocks. I've got a lengthy list for you again. And again, we thank you for writing in with all these names. And I do go through the entire list with Eric and ask him if there's some that he can comment on or some that he knows anything about. So please understand that we do look at all these companies. And we've got some that I know Eric wants to comment on. Before I get to some of those names, I just wanna make sure we clear your desktop, Eric. Anything else on your mind this week?

Eric: The only other thing I meant to mention but didn't. Well, first of all, we didn't mention that at the end of June, we had an all-time end of month closing high for gold, all-time. Now, people would wonder about that because we all know we went to $1900. But that month that we went to $1900, we closed below where we closed on June 30th this year, okay? So this is a closing high. And when you have that kind of technical breakout, when you've had it before, you end up with very dramatic moves in the price of gold, in the hundreds of percents. So, as we've discussed before, some of these projections of $2,700, $3,000, $4,000, those could easily come into play here with the way gold's been acting. One other thing I want to say, I watch what amount of money is going into the silver ETF versus the gold ETF. And for every dollar that goes into the gold ETF recently, I believe 66 cents is going into the silver ETF.

Craig: Wow.

Eric: But they trade a hundred to one, which is absolutely ludicrous, because if the world decided to spend what they spend on gold in silver, or even if it's two thirds in silver, where is the price gonna go here? You know, they're putting so much money. And that's how you get 10 million ounces a day. Silver is an acceptable thing now. And speaking of acceptable, I think one of the great changes that's going on in the market, the market is buying into higher sustained gold prices. You know, a year ago, the price of gold was, like, $1,300. It's almost $1,800. That's $500 difference. What do you think the value of that ounce in the ground is doing when you can get an extra $500 all profit? Like, the ounces in the ground are worth more.

So, for example, and I was looking at a company this morning, let's say, they've got about a million ounces, looks like that could grow, they're kinda high grade. I think, gee, a million ounces. That guy get in Canadian dollars, $2.5 billion of gross metal value when he sold it. And because they're high-grade, he might make a billion and a quarter. Then he'll look at his market cap. "What? It's trading at $30 million? You gotta be kidding me." Anyway, but the market's coming into believing in that the high prices will be sustained.

And so when I was gonna refer to companies, of course, the best performance has come from large, low-grade ore bodies, which is exactly what we would have expected. Because at $1,300, maybe you don't even bring the project into production. But at $1,800, man, you're making a lotta money. And so, you know, when I mentioned the Treaty Creek properties that are owned by Tudor, American Creek, and Teuton, you know, with this potential, potential, $30 million or whatever getting bigger because they could even drill, and they've announced they're drilling more than one property up there this year, those things are going crazy. The same thing with the Freegold Ventures with their 6.5 million ounce resource, that now people pay for that resource.

Six months ago, they were paying $1 an ounce in the ground. Well, we know that it's worth way more than that. And, you know, people still say, "Well, you know, they're only worth 50 bucks an ounce." Hey, we've put $500 on the price of gold since we used 50 bucks an ounce in the ground. That's surely to God must be a lot higher, but $100, or $150, or some part of the $500 anyway. Anyway, those are the kind of things that are going. I noticed that Chesapeake was rocking up because they got a low-grade open-pitable. I bought a new stock called KORE Mining, K-O-R-E, and that's the symbol actually, who's got some deposits in California, one in BC. I think it's roughly 4 million low-grade ounces in California, higher grade up in BC.

But I think people start to pay for stuff like that because imagine what it's worth if we continue to have gold going into the 2,000s here. What should we pay for an ounce in the ground? It's gotta almost be going up exponentially. So that's [inaudible 00:17:10]. Of course, Discovery Mines is my favorite in terms of lower grade, but not really extremely low-grade, but big silver deposits. So those kinds of stocks seem to just keep doing well.

Craig: You'd mentioned Discovery. Some people asking about that this week, and also Amax.

Eric: Yeah. Now, Amax, I did speak to management this week. It does look like they're onto something significant in the Quebec and the Abitibi. They're drilling deeper. They're getting wider intersections. They're getting visible gold. They're getting high-grade gold. These deposits can go a long way down. It's a little bit like Walbridge, you know, as they went deeper, the thing opened up and the grade exploded. And they look like they could have something serious in their hands here. And the stock's done very well. But I think it's got a lot in front of it here.

Craig: And again, back to this that somebody had asked about some results that Discovery put out back on June the 18th, I guess, was that some good news?

Eric: Well, they had good results. I had listened to a presentation that they'd made. And they're trying to focus in on finding a higher grade section of this theoretical billion-ounce deposit. And, you know, 500 million ounces of higher grade is nothing to sneeze at. So yes, the drilling has proven up. Very good results. I think they think the ore body is higher grade in the Form 43-101 gave it. So they're using different drilling techniques to try to improve the recovery of the ore, so that they can get a better reading of the grade. And they've got lots of prospectivity on that property. So things are shaping up pretty well for them.

Craig: You know, if they really have 500 million to a billion ounces, you know who should buy them is the prop desk of J.P. Morgan. That might come in handy for them in the months ahead.

Eric: Well, let's put it this way. Maybe the prop desk for the guys other than J.P. Morgan who are short gold. I mean, theoretically, J.P. Morgan isn't short gold, they're long gold...silver, sorry, silver. But the other guys who are short silver, that's what they should be doing. They should be buying the shares. In fact, they might make up totally for their loss, because if, you know, if silver doubled, fine, they're gonna lose 100% of their money. But if they owned a silver stock, they'll probably make 300% and 400% on their money. So that'd be a nice way for them to cover things off.

Craig: That's funny you said that. There was a question a couple of weeks ago of somebody saying, "Why don't companies do that? If you're really, really short, you know you're gonna take it in the shorts by having, you know, to cover and get squeezed. Why don't you buy some little small junior producers to cover your losses?"

Eric: Yeah, they should. And they would make a lot of money on it...

Craig: Yeah, they would.

Eric: ...because of the leverage.

Craig: Some folks wanted to ask you about Alexco.

Eric: Yeah, Alexco, they're up in the Northwest Territories. Silver, lead, zinc. I'm an owner. They're trying to get into production. I think they're scheduled to be in production this year. I have not added to my position recently. Waiting to see, you know, "Can we get this thing in production?" And, "How are you gonna mine it? And how successful are you gonna be?" And I'm sort of standing back just waiting to see how those things evolve. But I own it. I haven't sold any. And very hopeful.

Craig: Let's just kinda end on an up note in general. Are you sensing yet that some of these guys and their hedge funds that have made a lot of money over the last seven or eight years, just naked shorting and, you know, anything that goes up 50%, they go in and just pound it backwards, naked shorting. Are you sensing any reluctance yet? Are you seeing anything out there that just kinda catches your eye that, "You know, maybe these guys are figuring out that's not such a good idea anymore."

Eric: Well, you know, I'm sort of snickering here. Kinda hope they are shorting, quite frankly, because, man, they're gonna learn a lesson here, okay? When you have a bull market in precious metals, like, stand back, baby. The last bull market, from 2000 to 2011, the stocks went up 1,700%. You wanna be short and lose 1,700% on your money? Be my goldarn guest, okay? And if you wanna be short a bunch of stuff in the Treaty Creek area, you go right ahead and be short all you want, or you wanna short Freegold Ventures, you just go right ahead, because you're just gonna get blown out. You're not gonna play that stupid game with us, because things have changed. These things are being accumulated rapidly. So those guys, I think that game... If I was a short seller, I'd say, anything to do with precious metals, never touch it on the short side.

Craig: There's gotta be other opportunities in the general market, you would think, and get out of this sector. That's for sure.

Eric: Yeah. It doesn't work like it did in the old days. It was fine when you're in that bear market from 2011 to 2016, and even '17 and '18, really, before the general gold stocks started going. But it's not gonna work anymore. That's over.

Craig: Well, I hope you had a nice Canada Day, my friend.

Eric: We did. We did have a nice Canada Day. And I hope you have a nice Independence Day down there, nice long weekend for you. We haven't figured out up here that, you know, we shouldn't always celebrate it on the day that it is, because sometimes it's the middle of the week, and it's hard to break away.

Craig: Throws off everything. Yeah, exactly.

Eric: Yeah. But our market is open on Friday, by the way. So while you're out there doing whatever you're doing, sitting in the sun or playing golf, we'll be back at the casino.

Craig: You'll be working.

Eric: Let's see how it goes. We'll be back at the casino.

Craig: See what you can do, all right? See if you can get things moving back higher before next week. And then we'll be back on schedule next week. It'll be another busy week, I'm sure, as we move again closer to earnings season again for all the majors, we'll be back next Friday with another weekly wrap up. In between now and then, of course, all this talk about physical metal. And if price does fall, I mean, where are they gonna find physical metal again like what happened back in March? So get your physical metal while you can. Sprott Money has some, lot of Royal Canadian Mint Maple Leafs, both gold and silver. You can check us out at sprottmoney.com or, of course, again, just give us a call, 888-861-0775. Eric, thank you again for all your time and all that you do. And let's just see where we go from here.

Eric: Well, we've got a good rally coming back here. We're only down two bucks in the spot price of gold. So hopefully, we'll end up with a really fancy day. And, welcome the shorts. We'll do it to them again.

Craig: Let's do it.

Eric: You have a great weekend.

Craig: Thank you, my friend. You do the same. And from all of us at Sprott Money News at sprottmoney.com, thank you for listening. And we'll talk to you again next Friday.