$300 Oil, $75 Silver and $4,700 Gold? David Jensen on the Future of Real Assets

Craig Hemke (00:01)
Hello again from Sprott Money at SprottMoney.com. We've reached the end of April already and it's time to wrap up the month. I'm your host, Craig Hemke and joining me to call it a month is my old friend, David Jensen. David, a market analyst and mining executive, somebody that you want to know, somebody you want to follow on Substack. It's going be great to pick his brain about where we stand here one third of the way through 2026. David, thank you so much for your time.

David Jensen (00:36)
My pleasure, Craig. Great to be back with you again.

Craig Hemke (00:40)
Always fun to visit. And you do such great work that I just always value your insights and your opinions. ⁓ Let's start with those two things. One, remember Sprout Money sponsors all of these podcasts and videos. So be sure to visit SproutMoney.com whenever you're looking to buy precious metal, even platinum as well. If you're looking to augment your gold and silver portfolio, but also they'll store it for you as well. Check out SproutMoney.com.

for the best deals in precious metals or call them 888-861-0775. Now David, you have a sub stack ⁓ that I get notified every time you write something and every time you write something, I'm like, I gotta put that on my Twitter account to make sure everybody sees it. Cause you do such a great job. Where can people find this sub stack of yours?

David Jensen (01:27)
Thank you.

Craig Hemke (01:32)
Oops, did lose you David? ⁓ where can people find this substack of yours?

David Jensen (01:35)
Nope, here.

Craig Hemke (01:49)
Perfect. And I, like I said, save that one to your favorites list if you ask me. ⁓ David, let's dive right in. ⁓ We've had, obviously, March was unexpected and a very difficult month. April started off just fine. Now we're gonna, at least as we record this on the 28th, we're about even on the month for both gold and silver. And mining shares mostly kind of flat too. So under that, all day.

Heat and excitement about silver has kind of faded to the background after January and February. We'll get to silver in a second. You've been writing a lot about crude oil and the Western price, what we see on the NYMEX with WTI crude oil futures versus other international benchmarks. And what's going on there and how is that impacting price and how is that impacting eventually the global economy? So I want to start there. What do you think is going on there?

David Jensen (02:50)
What?

Craig Hemke (02:50)
What's

going on with the crude oil price?

David Jensen (02:53)
think it's our old friend, the derivatives ⁓ pricing ogre, which is raising its head there in oil. But we're seeing a real divergence and a bifurcation between the futures price that everybody's following when they talk about the WTI, the West Texas Intermediate Price of Oil every day. it's not actually the price of oil, it's the derivatives price that's traded on the COMEX, just like the silver and

you know, bullion prices are derived. So they're using these futures contracts, which are highly leveraged contracts. We've been through this ad nauseam over the years. And ⁓ we're seeing now that there's a tremendous separation between ⁓ the prices, you know, which everybody is following. And some are getting paid by in terms of delivery of actual crude and the actual market price. ⁓

You know, Sri Lanka, a couple of weeks ago, we heard there from the CEO of HSBC, the bank, the UK bank that they had paid up to, I think it was $286 a barrel for crude delivery for physical crude. And so I think it's being really highlighted tremendously. I'm just, I can't help but wonder if this artificially low price for crude has something to do with the announcement today of the UAE leaving

leaving OPEC because ⁓ at some point, mean, the Persian Gulf has been smashed because of the alignment of many of these countries ⁓ with OPEC and also back to the US and Europe, I guess, what they call the old world order. And I can't help but wonder if these guys have finally had enough that they've been getting underpaid for their extremely valuable energy products that they're shipping.

and also the devastation that's been brought on because of the geopolitical and military alignment with the West.

Craig Hemke (04:57)
David, the most recent article you have on your sub stack, by the time people get there, you may have written something else, so have to kind of seek this one out. The title is, Petroleum Products versus Crude Price Spreads Highlight Crude Oil Futures Pricing Disconnect. ⁓ In a nutshell, what are you watching there?

David Jensen (05:12)
Right.

Well, so first of all, these are these are comparing prices of petroleum products such as diesel and gasoline. It's called the three to one crack spreads. They look at the cost of of buying ⁓ three barrels of of of crude and then selling ⁓ two barrels of gas and one barrel of diesel. And so that's the plus and the minus side. And they come out with a comparison of the

the cash generated by these distillers, these crack operations that they have. And so what we're seeing here is that there's about a $57 spread between the prices, which is more than twice what it has historically been here over the last year. And so what that's showing is that even using derivatives prices, that the price of gasoline and

diesel are running away from the global price of crude, is just under $100. And a lot of people are scratching their heads as to how this can be. I think there's a knock-on effect into all of these derivatives markets, Craig. think that people, when they see this kind of a malpricing and it is interfering with the supply-demand dynamics of the energy markets, which are so vital for life.

And, uh, you know, I think what we're going to see now is that on an accelerating basis, it always starts gradually and then step by step things change. And I think we're going to be leaving behind these, uh, infinitely available derivative products, um, in terms of determining the price of, of, uh, of essential, uh, uh, items such as food and energy and precious metals, which are so intimately linked with interest rates and savings. And,

I think it's going to be accelerating here in the future that we're going to see a physical market which is going to set prices. And as I've mentioned, approaching $300 a barrel in Asia for tanker delivery of oil is very, very different from $90, $95 for a digital futures contract in New York.

Craig Hemke (07:29)
And correct me if I'm wrong, David, but didn't the US Secretary of the Treasury, Besson, say that's what they were considering doing? I mean, we're not in crazy town here. Didn't he say they were going to use the futures market to try to manage the price back in March?

David Jensen (07:43)
Yeah. So it's, mean, we know where Besant comes from and, ⁓ right. And so you, kind of run this, ⁓ what, what could you even compare it to really a puppet show, basically to distract everybody. ⁓ and, ⁓ you know, even, even, ⁓ Donald Trump there mentioned the other day that got oil was at half of what they had been expecting it to be at. But when you've got infinitely available, derivatives contracts in oil, ⁓ no wonder the price doesn't move. Right.

Craig Hemke (07:47)
Right?

David Jensen (08:14)
And at some point, at some point, participants, the producers of this vital resource are going to start ⁓ recognizing that enough is enough at some point. And it's really important actually to have a high price because it brings so much more supply onto the market. And so what we're seeing here is that the supply is actually being crippled with this artificial pricing system, which is not opening the taps fully at a time where we need it.

We're missing over 600 million barrels of global production since the start of this war. And every month, every month that goes by, we're missing another 400 million barrels. So that gets into extreme chaos territory at some point. And, you know, it's not just the oil, it's also natural gas and fertilizers and, you know, the

Craig Hemke (09:07)
plastics.

David Jensen (09:08)
right plastics and the fertilizer thing especially like this is Northern Hemisphere planting season and North American farmers are forgoing ⁓ fertilizer because they can't afford it in many cases and ⁓ they're going to have suboptimal crop yields in India and some of these places. it has ⁓ consequences down the road and you can't just do a U-turn like the planting season's almost at an end now, right?

Craig Hemke (09:26)
Mm-hmm.

David Jensen (09:34)
You can't just turn on a dime here and correct things. So it's really important to resolve this unnecessary ⁓ conflict in the Persian Gulf as quickly as we can.

Craig Hemke (09:45)
Yeah. Let me turn this then, excuse me, to the mining shares. Pick your brain a little bit ⁓ as an executive in a mining company. ⁓ If you just take like the GDX, the ETF as a proxy, I it was 118 at the end of February and now it's about 90. So what's a 25 % down? And you think on the surface, I look at that and go, well, that's overcooked. Yeah, sure. Energy prices are going up and costs are going up.

It's the, and this has dawned on me, maybe market participants, if we want to call them that, are looking at that energy price, like you said, and say, yeah, it's not really a hundred, it's more like 150. And, and so what we're translating that into costs for miners is actually well, is actually undercooked because they're not really going to be dealing with a hundred dollar crude. It's going to be more like 150. Could you just kind of expand on that and.

David Jensen (10:35)
Yeah.

Right.

Craig Hemke (10:44)
the role of energy in a producing miner and the differing impact it has, whether you're taking it out of a hillside or whether you're taking it out of an open pit.

David Jensen (10:55)
Yeah. So if you're looking at a high grade underground miners that are connected to the grid, to the hydro grid or electricity grid, diesel is only three to 7 % of their OPEX or their operating expenses. If you look at open pit miners, you know, the disseminated deposits, like I would say a big copper mine, a copper gold deposit or something of that nature. Diesel.

cost is 20 to 30 % of their OpEx. So, I mean, if you double the diesel that they're paying, you you're running from 6 to 15 % from 3 to 7 % for a high grade underground miner in terms of their operating expenses. But when you look at it, I can open pit mine that even one that's on the grid getting low cost electricity, relatively low cost electricity, they're 20 to 30%.

can go to 40 to 60 % of their OPEX quickly. And that can eat up the entirety of their profit margin unless the price of the metals ⁓ go up. And then if you're looking at like an open pit mining operation, which is off-grid, diesel is 40 to 50 % of OPEX and it can eat up, it can basically ⁓ increase by 50 % their operating costs in a heartbeat. so, you know, I think that some of the underperformance of the miners

is related to ⁓ the digital price that we're following for gold and silver ⁓ not being particularly active. the market interest is waning in there. But also the fact that unless you're a high-grade underground miner on the grid, you're looking at tremendous risk here in terms of these energy prices. ⁓ in reality, the cost of diesel is more than $5 a gallon right now.

which equates to over $200 for a barrel of diesel. Then you've got your deliveries costs to site, et cetera, et cetera. And these costs ramp up quickly and really impinge on the profitability of miners. So yeah, I'd stay focused on North American miners ⁓ with high grade underground operations on the grid. that people should be relatively well insulated from the impacts and of the diesel shortages.

Craig Hemke (12:56)
Hmm.

You got to do your homework a little bit here. You can't just own the GDX or a fund and just blanket the sector. If they all get washed back at the same rate though, as people do that, well, that provides maybe some opportunity because you might find some, like you said, that are on the grid and in a hillside, in a good jurisdiction, that the actual, the margin.

David Jensen (13:41)
Yeah, in the silver market,

your hacklas and your cordolanes, you know, I think are particularly well positioned because of the, you know, of their portfolio of properties here in North America.

Craig Hemke (13:48)
Yeah.

Now, that's one side of the issue. The for-profit margins is rising cost. And we're getting squeezed from the top side because price is falling. ⁓ I want to ask you about just kind of the macro economy, ⁓ because again, the thought at this point still seems to be that we got a supply shock with higher inflation. And so the Fed is going to be tightening interest rates and the dollar's rising and bonds are selling off. Do you think, though, instead if

as this continues and precursor chemicals and other supplies, not in liquid natural, liquefied natural gas, everything else, it starts getting into shortages. Do we instead have a demand problem like we've had in the past with things like COVID and it's not rate hikes, it's more like rate cuts. How do you see all this playing out over the rest of this year and even in the next?

David Jensen (14:47)
Yeah, I mean, if you look at silver in particular, it's a strategic resource. Gold is too from a monetary aspect, but from a manufacturing and a strategic material supply side, silver is an absolutely critical mineral. And it is very interesting seeing that the price differential between Shanghai and New York and London in terms of the cash price is still running in the $10 region per ounce.

And we know that it costs about $2 an ounce to ⁓ move ⁓ silver in bulk from these major centers from London or New York ⁓ over to Shanghai. And we have been seeing the inventories have been building on the Shanghai exchanges as we would expect. So ⁓ I'm expecting to see it continue. And there's a drawdown happening ⁓ with the London and New York vaults now over the last couple of months.

And that's totally to be expected, Craig. you know, looking at these markets, like a lot of people talk about the COMEX and how there's a couple hundred million ounces there in the eligible category, which is not available to market. And they just say, well, well, they'll just pull out of the eligible, but there's nobody really knows how much of those ounces in eligible are available to market.

Craig Hemke (16:06)
Right?

Right.

David Jensen (16:08)
So, you know, the registered amount that's in the vaults New York available to market is of the order of 75, 76 million ounces. And if you look at London, it's a little bit more than that, but not tremendously so. So that's, you know, of the order of about 85, 90 million ounces. And these numbers are six weeks behind because of the way London reports. But overall globally,

you know, what we can ascertain is available to market without having to conjecture is of the order of about 200 million ounces of silver. And these numbers are steadily being drawn down right now. And I expect that with this price differential that the tap is open from the West and it's being drained into these vaults in China. you know, I would be importing as much of this material as I could, you know, given the instability that we see globally and

the thrashing around that's happening in the Persian Gulf. And then also the signs now of the threads being pulled in the fabric ⁓ of OPEC looks like it's destabilizing that. And I think that OPEC, ⁓ what it did do ⁓ when it was, ⁓ throughout its life has been to validate the pricing of oil with US dollars. And if OPEC is coming apart now, we'll see if more follow.

⁓ the UAE ⁓ out of OPEC. But the question is then what are they going to be pricing with? Right. That opens the door back to the old petro gold trade, which existed prior to the 1970s and which was really the bane of the US in terms of the drain of gold that was happening on treasury holdings.

Craig Hemke (17:41)
Right.

Mm-hmm.

Mm-hmm. That's a whole side of that story. You guys were recording this on the 28th. That was a story that just broke this morning. The UAE leaving OPEC on May the 1st. Talk about unknown unknowns ⁓ from when the war began. There's one right there.

David Jensen (18:05)
Yes.

At least they gave you three days notice right there.

Craig Hemke (18:15)
Yeah,

exactly. Like a tenant moving out or something. But again, if on the, you know, where everybody's so focused, or at least the market seems to be so focused on these margins getting squeezed, I mean, we're still talking $4,600, $4,700 gold and $70, $75 silver. Is it encouraging to you? And what does that tell us that, you know, silver?

Never been above 50 ever, really. And the two times I tried to get there in my lifetime, it immediately went straight back down. We got above 50 back in October and we're still there.

David Jensen (18:49)
Yeah, mean, treasuries continue to be sold, Craig. Interest rates are rising. are, ⁓ interest rates today are above where they were on March 1st at the beginning of ⁓ this conflict. And so that always raises the question that if you're not in treasuries, what are you in? And given the deficit spending and the instability that we see around the world from all the world's governments, ⁓ it's a very ⁓ small portfolio of assets that you would want to hold.

And also keeping in mind that, you know, we haven't really seen the full impact or effect of this conflict yet. mean, if you look at, you know, jet fuel that's in transit in tankers and in the supply, ⁓ in the supply system, supply chain, ⁓ the volume of jet fuel that's being in transport right now is down 60 % from before the war started.

Craig Hemke (19:33)
Thank

David Jensen (19:47)
It's not just going to be Spirit Airlines. You know, they announced yesterday that they were going to be looking to the government for a bailout, but you've got mass disruption and so much of our high tech industry runs on just in time delivery ⁓ of chips and high value ⁓ components into the manufacturing supply chain and even automobiles for that matter. ⁓ know, anything with a computer in it is often intensely reliant on these just in time delivery systems.

Craig Hemke (20:00)
Yeah.

David Jensen (20:17)
and air freight. And if you've got a 60 % drop ⁓ in the availability of jet fuel coming into the system now, you know, after seven, eight weeks of conflict, ⁓ the other shoe has to drop. And I think that that is going to compound ⁓ the importance of holding secure and safe assets outside of a destabilized economy and financial system and currency system for that matter.

Craig Hemke (20:44)
So David, that kind of leads us, I guess, to the last topic, last question. And in a sense, I'm kind of doubling back to where we were before. I mean, it's kind of, feels like it's a dark time for us. know, the gold's being pressured. Central banks have been some net sellers like Turkey. Azerbaijan sold 20 metric tons in the first quarter. And if the yield curve keeps shifting higher and the dollar keeps rallying and the central banks keep selling, gold's gonna probably go even lower.

But in the end, does this end up being a global liquidity and demand shock? You know, we've joked in the past, you know, the QE programs got bigger and bigger with each one and the Fed's balance sheet went from a trillion to two trillion to five trillion to eight trillion. ⁓ Is this next, well, I don't know what the word is, is this next, you know, global shock gonna lead to

an even bigger central bank ⁓ balance sheet expansion. ⁓ Is the market not pricing that in yet?

David Jensen (21:54)
Well, yeah, the market is strangely frozen, but I mean, looking at it, big picture, what's been happening since the 1980s, 1987, when this promissory note pricing system was developed for gold and silver in London, the expansion of these financial assets, which were basically ballooned in size. were, were, they were bubbled up to the point now where

you you're looking at over $240 trillion of stocks and bonds globally and interest rates continue to move up. They're not moving down, they're moving up. And this is a bad thing in terms of if you've got assets that are dependent on lower interest rates and speculation and liquidity. So the risk here, and I think that this is the ultimate end game of this, you know, the bubble system that

Craig Hemke (22:37)
Yeah.

David Jensen (22:48)
Greenspan helped to author ⁓ is that these rising interest rates at some point caused bonds and stocks to fall together and that we are in a world of global shortage now of it's going to be extraordinarily intense in terms of energy shock, food price shock, food availability shock, that it's going to raise the specter of these unstable financial assets that everybody's been depending on.

have relatively little value when you look at the fundamentals of society, which is food, energy, fiber for clothing, right, the necessities of life. And I think at that point, we'll see what the true value is of these absolutely ⁓ essential ⁓ stuffs are from which we ⁓ continue life here. And I think that you're going to see a growing skepticism. You know, you see the...

Craig Hemke (23:23)
Mm-hmm.

David Jensen (23:44)
upheaval that started in OPEC. I think there's going to be others that will follow ⁓ and there's going to be a currency issue. Treasuries and bonds of all the major industrial countries are going to continue selling off. And it's very interesting that, you know, during this period of war that the air quote safe haven status of ⁓ bonds has shown not to be so much. They've decreased in value during this panic and

This is before it gets really bad. And I think that's the next couple of months here. We're going to see what the true effect is of these voluntary wars and disrupting energy and food supplies to the global population.

Craig Hemke (24:25)
I was speaking with Chris Martinson from my own TF Metals Report site earlier today, and he made a great point. He said, look at Japan, World War II was in large part in the Pacific because they're trying to find energy. And if their economy begins to really struggle because of lack of energy, what are they going to do? How's that going to impact the dollar yen? How's that going to impact global liquidity? I mean, all these things aren't

really being discussed. mean, it's like we're whistling past the graveyard here at the end of April.

David Jensen (25:01)
Yeah, I mean, Thailand, Vietnam, ⁓ Sri Lanka, the Philippines, all of these countries, they're so dependent on importing Middle Eastern oil of the order of 85 to 100 % of some of those countries, it's imported from the Middle East. And, you know, the decline, more than 80 % decline in total shipments out of the Persian Gulf area there ⁓ means that there's going to be very real impact. They started out with some of them.

two to four weeks of strategic stockpiles in terms of total consumption. And those have been bled down along with the, you know, the drags of the imported oil that they were getting over the last six to eight weeks. And now we're at the hinge point where we see what the true effect is of cutting off essential physical goods that sustain life. And yeah, I think it's gold and silver and things that are in your possession and

Nobody else's liability, nobody else's promise is going to be increasingly valuable going forward.

Craig Hemke (26:06)
Yep. All the stuff we've talked about, literally David, you and I for years. And this may be the final, again, to use Chris's analogy. He said, it's like the old road runner cartoon where the wily coyote runs off the cliff and then sits there and kind of treads his legs for a minute before he drops. It's kind of like where we are. It's going to be interesting from here. That's where we are at the end of the first third of this year, but whoa.

David Jensen (26:24)
Yeah.

little bit too interesting.

Craig Hemke (26:35)
Let's see where we go from here. I didn't mean to interrupt you. You had something else you wanted.

David Jensen (26:36)
Yeah. No, said it's going to be

a little bit, it'll be a little bit too interesting, I think.

Craig Hemke (26:43)
Yeah, yeah, unfortunately, a little more than we bargained for as this year began, but it is what it is.

David Jensen (26:48)
I think

the future is real assets. think we can encapsulate the entire discussion in that. And we're seeing a breakage of these compacts like OPEC. I think that the future is, know, using a derivatives market, a futures market to price real assets, not reflecting the true supply and demand is ⁓ finally showing itself up to be a farce, which many had predicted. And it was known going into this.

Craig Hemke (26:54)
Yeah.

David Jensen (27:18)
you know, in the seventies that you can't price assets using derivatives, you cause extraordinary price volatility because you just, you destroy price discovery when you separate pricing of physical goods from actual physical supply and demand. And that that's not just for oil, but that's for gold and silver and everything else. And because you're monkeying with gold and silver, you're monkeying with interest rates. And that's going to come back to visit us now. And I think people will be less than happy with the consequences.

Craig Hemke (27:25)
Mm-hmm.

We're gonna have a wild couple of months ahead, that's for sure. It has been a couple of months since we've had you on as a guest here for the monthly wrap up or the Ask the Expert segment. If anything, David, once we get through this mining season, I know you're gonna be busy through the summer, but maybe we can check in again once we get into the fall and see where we are, because I don't know where we're gonna be by then, but it'll give us something to talk about.

David Jensen (28:14)
Yeah, I'll contact you by Bush Telegram.

Craig Hemke (28:17)
Or you have pigeons up there? Maybe you can like fly one down to where I am.

David Jensen (28:20)
Sandhill cranes,

the sandhill cranes are coming through right now so I'll see if I can send a note to you.

Craig Hemke (28:28)
They'll be headed back south by fall. So that'll be perfect. That'll be our mode of communication. David again, ⁓ check out davidjensen.substack.com, right?

David Jensen (28:40)
Nope. Jensen David. That's obse-

Craig Hemke (28:41)
⁓

see the old man can't keep it straight. JensenDavid.substack.com and keep on, keep on top of what David is thinking. He's a great mind and someone you're going to want to follow there. David, thank you so much for your time. I really appreciate it.

David Jensen (28:45)
Okay, yeah.

Thank you, Craig. Always great and fun to talk.

Craig Hemke (29:00)
and everyone on their way out. Remember, we may have wrapped up April, but we got a full busy month of May ahead. Hit the like or the subscribe button so you're notified every time there's new content from Sprott Money. You won't want to miss any of it as this crazy volatile year of 2026 continues.