Weekly Wrap Up

Gold and Silver Ready for Summer - Weekly Wrap Up

WWU with Bob Thompson

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It’s the last trading day of May, and precious metals are looking to finish the month strong. Host Craig Hemke sits down with Bob Thompson of Raymond James in Vancouver to break down all the gold and silver news you need as we head into the summer months. 

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

  • Is the Fed jawboning its way into Yield Curve Control?
  • Why silver will have a bigger run than gold
  • Plus: Where Eric Sprott is currently focusing his efforts

“The inflation numbers, the core PCE, came in at 3.1%, which was a bit of a surprise to the upside. So, it continues to surprise to the upside. But, of course, the Fed says it’s ‘transitory’, but what are they going to say? Are they going to say, ‘Oh my God, we’re going to have massive inflation”? Because that’s going to create massive inflation. It’s like the CBO, who does their economic forecast, never forecasts a recession—ever—in the economy. Can you imagine if they said, ‘In 2025, we think there’s going to be a massive recession’? Well, they just created one.”

To hear Bob’s full thoughts on this week’s gold and silver news, listen here:

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

Craig: Greetings once again from Sprott Money News at sprottmoney.com. Hey, it's Friday, May the 28th. It's the last trading day of the month of May, with U.S. and UK markets closed on Monday, May the 31st. So we're wrapping up the month as well today, not just the week. I'm your host, Craig Hemke. Joining us this week is our old friend Bob Thompson. If you recall, Bob is a senior vice president and portfolio manager at Raymond James in Vancouver, and an old friend of Eric's. And so, it's always nice to have Bob join us. Bob, thank you so much for your time this morning.

Bob: Great to be on with you again, Craig. It's been a couple months, I think.

Craig: You've been a very busy guy. I know that. And it's great to have you back. And before we get started, just a reminder, again, all of these great podcasts, whether it's "Weekly Wrap-Up," "Ask The Expert," the monthly thing that we do with Chris Vermeulen, looking at the charts, all of that is due to the efforts of Sprott Money. You can find them at sprottmoney.com. And if you're having a hard time finding precious metals at a reasonable price, well, who isn't? Unfortunately, premiums don't look like they're coming down anytime soon either, especially on American Silver Eagles.

So be sure to stop by and check us out. We have some of the best prices in the business, and we're also obviously one of the most trusted names in precious metals. Please stop by sprottmoney.com if you're looking for metal or a place to store it. Of course, you can always just call us directly too if you want to talk to an actual person, (888) 861-0775. Okay, so as we move to the end of the week, there's just a few trading hours left. We're going to paint the weekly charts. We're also going to paint the monthly charts today. And we look to finish the week pretty well.

Some interesting data this morning on U.S. spending, U.S. consumer income, but also the Fed's favorite inflation indicator, because it's about as light on the inflation as you can find, but that's the core PCE. All of that helping to shove real interest rates even lower. And if you listen to these podcasts every week, you know the importance of negative real interest rates on gold prices. So, Bob, I'm sure you've been watching this all morning. What are your thoughts on where we stand as we wrap up the month of May?

Bob: Yeah. You know, Craig, the inflation numbers, the core PCE came in at 3.1%, which was a bit of a surprise to the upside, so it continues to surprise to the upside. But, of course, the Fed says it's transitory. But what are they going to say? Are they going to say, "Oh my god, we're going to have massive inflation?" Because that's going to create massive inflation. It's like the CBO, you know, who does their economic forecast, never forecasts a recession, ever, in the economy. Can you imagine if they said, "In 2025, we think there's going to be a massive recession." Well, it has created one.

So, anyway, we have to always take these numbers with a grain of salt, but the core PCE, of course, as they like to say, doesn't include volatile energy and food prices. And as I always say, thank God nobody ever eats or uses energy, or else the numbers would be higher. But anyway, I think we all feel that the number's a bit, a lot higher than that 3.1%, but it is trending up, and there's a lot of things this decade, I think, that are different than last decade, which will continue to push these numbers higher.

You know, I wanted to mention here that I just want people to think about this for a second. U.S. government spending, every year, 70% of it, 70%, is entitlements and interest on the debt. Seventy percent. And that's unproductive, obviously, spending, you know, as far as growth is concerned. So it's really tough when you get to these levels of debt and entitlements to grow your way out of things over the long run. So that's why I think, you know, over time, the Fed's gonna get pushed into yield curve control, but we can talk more about that.

Craig: Yeah. No, that's been kind of the expectation ever since last summer, when they first put out their notice they were going to let inflation run higher than usual, you know, through the averaging of inflation, all that stuff, Powell announced at Jackson Hole last year, in late August. Now, Bob, everybody's looking at this next FOMC coming up in, it'll be two weeks from Tuesday and Wednesday of next week. So I don't know, whatever that is, 18 days from now, 19 days from now. Everybody's looking at that, waiting for something from the Fed, because if you don't get something from the Fed regarding, you know, this talking about thinking about pondering taper, then we may not get anything till Jackson Hole in August. It certainly sets us up for a rather interesting month of June ahead. Doesn't it?

Bob: Well, it certainly does. And, you know, the last Gold Digger Report that I did, the title of it was "The Secret To Happiness Is Low Expectations." And you know I like that quote because the Fed always manages expectations. They always have low expectations. They always say they're going to be more hawkish than they actually are over the long run. But, you know, the fact is, you know, and this is a quote from Louis-Vincent Gave, he said, "A 50 basis point increase in the cost of funding for the U.S. government is equal to the cost annually of funding the U.S. Navy, which is $160 billion."

So if interest rates went up 50 basis points, that's $160 billion extra interest of what it costs to fund the U.S. Navy for a whole year. So I don't know how much interest rates can go up.

Craig: Right, exactly. And there's history in the past. The last time we had a debt-to-GDP ratio like this, after World War II, the Fed did institute yield curve control. And, Bob, I would suggest, what do you think of this? I've been telling everybody at my site, the word "transitory," as you alerted to earlier. I mean, if they said, "Oh yeah, inflation is here to stay, and oh boy, are we screwed," nobody would be buying bonds, and rates would spike. The word "transitory," and the use of it, repeatedly, is actually the Fed's first foray into yield curve control, jawboning it. Does that sound right?

Bob: Sure. No, absolutely. Because it doesn't matter really what happens. What the market reacts to is what they think is going to happen. And, you know, as long as the Fed continues to jawbone things down and the market believes them, then that's fine. Now, you know, even Alan Greenspan said a long time ago, this all works until people lose confidence in the Fed, and then it's a free-for-all. So, right now, everybody still has confidence in the Fed. So, we'll see, but you brought up a good point there, because let's just go back in time. You talked about tapering.

You know, 2010 to 2020 was the decade of austerity. Everybody was cutting back, spending was not happening. These are all deflationary sort of forces. And then in 2013, the Fed came out and did the taper tantrum. And if you recall in 2013 what happened to gold, gold got slaughtered that year, and it was a bad time for years and years with gold. The U.S. dollar spiked. It created all kinds of catastrophic consequences for emerging markets and because of the debt in emerging markets, etc., and this all culminated, but right at the end of 2015 and 2016, with the U.S. dollar spiking, and, you know, emerging markets in really, really tough shape, and everybody non-U.S. in really, really tough shape.

So, I can guarantee you one thing. The Fed does not want to make that mistake again. They do not want to be the first ones out of the gate with tapering. So that's why we see this time that the Bank of Canada here has actually said they might raise interest rates in 2022 instead of 2023. The ECB is probably going to be a little bit more hawkish. The doves this time around are the Fed. They don't want to make the taper tantrum mistake of 2013. And that all points to, you know, positive things for gold, negative things for the U.S. dollar. And that's why we see DXY hit a level, early March, and has, starting to fall off again.

So, you know, I think all of these fluctuations happen on a week-to-week basis. You have to keep that in mind. This is a different decade than last decade. The Fed is not going to make the same mistake they did in 2013.

Craig: Yeah. So, Bob, let's talk about price. Again, the last time we spoke was back in March. Gold had come down. It had already hit once at $1,680, but it was ready to double bottom in late March at $1,680, which was a logical place for that to happen. We've now moved back up. We're above the 50-day moving average, we're above the 200-day moving average. We've clearly broken out of what's called a bull flag on whatever chart you want to look at, daily, weekly or monthly. So it looks like we're continuing higher from here. The shares look pretty good as well. What are your thoughts on price as we head into the summer?

Bob: Yeah, it's kind of fun to look back, right? I was on on March 12th, and with hindsight, March 9th, 3 days before, was the bottom. And if you recall, I said at that time I thought $1,650 to $1,675, $1,680 was probably going to be the bottom. And the reason for that was the technicals, one thing. But, you know, that isn't everything. It's sentiment in the market. And if you recall, last time in March, I mentioned that hedge fund sentiment was the lowest it had been in a decade for gold. Everybody hated gold. I couldn't find anybody... Even the gold bulls were scratching their heads, saying "Oh, God, maybe I was wrong."

And that's exactly the environment you want to invest in because of that sentiment, too. That's why I thought we were very, very close to the bottom. Now, gold's moved up nicely here but sentiment takes a while to change on the positive side. So, you know, we don't see excessive optimism right now. Everybody's not calling for $3,000 gold again. You know, by the way, when Bank of America, big institution, called for $3,000 gold last fall, I was like, "Oh, God. We might be getting to excessive optimism in the gold space."

So, of course, all those numbers have come down. And, I mean, what we see right now is excessive optimism in copper. Because everybody's positive on copper, everybody's doubling or tripling their copper prices now. Stocks have run massively. So, you know, being a contrarian, I would probably have to say that we're in an environment where copper is probably going to consolidate for a few months and make people rethink their thesis. But I think copper's in a bull market, and so is gold. But when we get to these times of excessive optimism, I think that, you know, a pullback is due, to make people rethink their thesis.

So, as far as gold is concerned, yeah, we've had a nice run here. You know, April was a big run. You know, it'll probably consolidate around this $1,900 level. You know, silver, especially, that $28.30 level's important. So, it's touched it a couple times, but I think once it runs through that, then, you know, silver's probably going to have a bigger run, because silver is the mid to late-cycle metal, so it's going to have a bigger run than gold over time, and decrease that ratio between gold and silver.

So I think everything looks good for the metals here. We're into that next stage. And that's really important to remember, that gold and silver are the first ones out of the gate, which they were right after COVID. Then what happens is interest rates start to move up faster than inflation expectations, and that hurts gold. And then it hands the baton over to the base metals. And that's what's happened here with copper and all of the other base metals. Then the baton gets handed back to gold again. And that's I think what's happening right now.

Craig: Yeah. And so, with that in mind, Bob, you were telling me earlier this week, you've made some changes to your mining clock. And if everybody listens whenever Bob's on, we always talk about his mining clock. It's kind of his, I don't know, Bob, we'll call it your proprietary deal. Tell us about it.

Bob: Sure. It's good for visualizing where we are in the cycle, because, you know, as Howard Marks says, everything in the world is cyclical. And if you forget rule number one, you're going to get destroyed. That's rule number two. Rule number two is if you forget rule number one, you're going to get destroyed. So, everything is cyclical, and it's important to remember that. So, when we look at the mining clock, it tells us kind of where we are on the clock. And, you know, I should have called it the gold and silver clock, or the uranium clock or the copper clock, because everything is different as far as the metals are concerned. So that's what I've done this month is changed it.

So, I have gold and copper probably around... Or sorry, gold and silver, probably around 6:30, which is definitely buy time, little later innings than copper. And then uranium, which is kind of by itself, because it works in a long-term cycle, etc., long-term buying cycle, is probably around 4:00. So, the 3:00 is the absolute bottom. That's kind of the puking, the capitulation. That was the end of 2015 for everything in the metals space. Then we start to move from there, where metal prices stabilize and start to move up and expiration starts to happen. So, yeah, it's a good way of visualizing kind of where we are in the cycle, because you don't want to be in at 11:00 or 12:00 into the sector, because we're heading into the next downturn. We're a long ways from that, though.

Craig: Certainly appears that way. And I know Eric feels that way as well. As I mentioned, you're an old friend of Eric's. I know you speak with him often. And we hope to have him come back and join us again someday relatively soon, though we still don't know what day that might be. But I know you speak with Eric often. What are his thoughts, at least as he's expressed them to you?

Bob: You know, I do speak to Eric regularly, and I spoke to him actually this week. And we talked extensively about what he's doing, and so I'd like to share that with you...

Craig: Great.

Bob: ...because I know the listeners haven't had an update for a while. So, we won't be talking individual companies, obviously, for compliance reasons, but I can talk about his thesis and what he's looking to do. And I think what I should say here, though, is this is not advice, remember. Do your own homework. I'm just telling you what Eric's doing at this particular time. So, you know, Eric has averaged... When he ran the Sprott managed accounts for 25 years, he averaged over 25% a year for 25 years. Absolutely extraordinary returns. And it wasn't always in precious metals stock. He's just a great growth stock picker.

But, you know, Eric spreads his ideas around, you know, in lots of different companies, but when he finds something he really likes, he concentrates on it, and it is the complete focus of his attention when he does that. So, right at this particular time, his entire focus is on Newfoundland, and the Central Newfoundland gold belt. Obviously, the Abitibi region of Quebec has brought out 150 million, 200 million ounces of gold. And Eric has paid a lot of attention here to Newfoundland, you know, based upon the research of a few people.

One is Rich Goldfarb, one is Ian Honsberger, and one is Shawn Ryan. And you take what these people have been saying about how they think Newfoundland can be very, very similar to that Abitibi region, and by the way, Newfoundland hasn't been explored hardly at all. It's incredible. Been there for millions of years, and they only came up with the idea that something might be there less than a decade ago. So, Shawn Ryan, who got his notoriety through exploring in the Yukon, actually said a few years ago, he said, "If I had known about Newfoundland 25 years ago, instead of the Yukon, I would have focused on Newfoundland instead of the Yukon."

So, you know, that was a pretty big plus for the area here. And then he started to buy up land, and people started taking notice just a few years ago. So, you look at these companies, Eric has really paid attention to their research. Obviously done a tremendous amount of research himself. And, you know, he's found 10 to 15 companies that he's taking a 20% position in, or he wants to take his position in those companies up to 20% in that area. So he's scouring, looking for new land, new ideas, and, you know, going to take that position to 20%, including some of the biggest companies in the area.

So, when you do that, and you blanket that area, we haven't had an area play for a long time in the precious metal space, you know, when you do that, there's going to be some discoveries. But what's important, you know, going back to the mining clock is that, you know, these companies have to get financing. We have to be in an environment where people are willing to give these companies money. And when they do, there's going to be discoveries. Companies will take that money, put it into the ground, and there wasn't discoveries for many years because nobody was willing to give gold companies or exploration companies money. So, once that money cycle starts, then we're going to start to get some big discoveries. And I think we're starting to see that in Newfoundland. It's exciting. Eric's excited about the area, and he's taking very, very concentrated positions in many companies in that area.

Craig: And you know what he's always taught me, and this is kind of contrary to what I thought was right back when I was a stockbroker 30 years ago, is when he finds one that's working, it's obviously working, he puts more money in. You know, a lot of people, I was always tempted, you take money off the table, "I'll get my seed money back out," you know, and that kind of stuff. But when he find ones that goes, he presses his bets, in a sense, which I always think is a fascinating strategy if you can pull it off.

Bob: Yeah. You know, a lot of this is psychology, right? And you gotta be willing to believe your thesis, you gotta be willing to have conviction, and you gotta be willing to hold your winners. Because all it takes is a few winners to make up for a lot of stocks that didn't win. But most people, you know, will chop their winners and hold onto their losers. Well, mathematically, you end up with a whole portfolio full of losers if you sold all your winners.

Craig: Right, right. Exactly.

Bob: So, you know, why would you do that? So, you gotta hold onto your winners, add to them as things get better. And as the rate of change of things are getting better, you gotta continue to add to those. So, anyway, he's very excited about that area right now, spending a lot of time on that. And, you know, any other ideas that come up, he kind of pushes them aside right now because he's focused on that area. And, you know, that sort of conviction is what makes somebody successful over time.

Craig: No doubt. Let's wrap up, what, with that line of his about being the only one in the room by himself at the party. What was that one?

Bob: Yeah. You know, he's told me that a long time ago, he says, "You got a party in the room by yourself." And he said, "It's an awful lonely place because everybody's having a party in the other room, whether it's tech stocks or whatever the case is." And he said, "You're accumulating large positions of small companies, exploration companies a lot of times, when nobody else wants them, nobody else is interested." And then he says, "All you gotta do is sit back and wait, because when all the people in the other room want to party in your room, it's an awful small door to get through."

Craig: That's right.

Bob: And it's a bloodbath because, the stocks go up many, many times at that point. But you gotta be there first, and you gotta be there early. And, you know, sometimes, Howard Marks once said, "The difference between being early and being wrong is sometimes indistinguishable." And I thought that was a good quote. Good quote, good quote.

Craig: Good point. Absolutely. Bob, thank you so much. It's always so much fun to visit with you. And for everybody that listens, please remember, help us out, get the word out. That would be a way to thank Sprott Money for all this content they put out. Please like, share, maybe subscribe to the channel you're listening to. That'll help us widen our distribution network, that's for sure. Again, Bob Thompson, Raymond James in Vancouver. Bob, thanks so much for your time.

Bob: Yup. Fantastic, Craig. We look forward to next time.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thanks for listening. Have a great weekend.

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About the Author

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 at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, 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.

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