Love the Weakness When It Comes—and Buy More - Monthly Wrap Up

Male: You're listening to "Sprott Money Monthly Wrap Up" with Craig Hemke.

Craig: Welcome back to the "Sprott Money News," sprottmoney.com, monthly wrap up for the month of April, the tumultuous month of April 2022. I'm your host, Craig Hemke, joining us this month, is Dave Kranzler. If you are in the precious metal sector, you probably know Dave. He runs a great website, investmentresearchdynamics.com, and his newsletter "The Mining Stock Journal" is really very viable. If you're interested in the mining sector, I mean, you can do your own research, heck, you can even throw darts at a board. You're going to get some winners. But a lot of times the key is avoiding the losers, and Dave does great work and has been doing it for quite a long time. And personally, I would encourage you to check out a site again investmentresearchdynamics.com. He's also an occasional writer here at Sprott Money. So it's great to have him join us for the "Monthly Wrap up." Dave, thank you so much for spending a few minutes with me.

Dave: Thanks for having me on, Craig. It's an honor to be invited. Although I think your intro might have been a little overcomplimentary.

Craig: If only they all knew you as I know you. But anyway, no, it is. I state this often again. I think we're in a pretty solid bull market here, regardless of what we've been through the last six or seven days, we won't talk about that. But you need help. I mean, you got guys, like, Eric that can do it on their own, but even he's got a team that helps him look at the mining shares to find which are the right ones. So you need a team and I think what you do is very valuable in that regard Dave. And again, you know, and I want to point out as I often do. All information in the precious metals value. We really don't want to do it on your own. And I think what Sprott Money does, either with these calls, this "Monthly Wrap up," or the "Monthly Preview" thing that I do with, that looks the technicals with Chris Vermeulen. The articles are written by great writers, like, David Brady. All this stuff is valuable.

So please check out sprottmoney.com all the time, sign up for the newsletter so that when something is posted you don't miss out. Hit may be a like and a subscribe on whichever media channel, you take the stuff in so you get notified as soon as stuff comes up. And then again, thank Sprott Money for this content, you know, they make it for free, but you know, it's a business. And so they could, it be great to have, you put them on the list whenever you're in the market for physical metal or storage, it's sprottmoney.com, is the website or you can always call them at 888-861-0775.

Dave, okay, it has been a tumultuous month, man. Let's see, it took about 12 weeks for the GDX to go from 29 to 41 and it took one week to give half of that back. So let's start there, just a correction, you know, where all the latecomers get flushed fast. What do you make of the mining shares here as the month ends?

Dave: You know, I like the way you put that because what people tend to overlook is and I had run the numbers right before the GDX fell, if you just look at the chart, it looks like it fell off a cliff and I had run the numbers, right before it fell off a cliff and from the end of January through, call it April 14th. I mean, it was up 30%. I mean, that's a huge move for a stock index in that short of period of time. I mean, if the S&P or the NASDAQ went up 30% in two and a half months. I mean, they'd be doing naked cartwheels on CNBC over it. Of course, that cut type of move the mining stock sector gets no acknowledgment except, you know, by we gold bugs. So I was actually expecting some type of correction or pull back and, you know, as you point out, it took a week or week and a half to give back half of that game. And that's just the way it rolls in this sector, it's the sell-offs were shocked in awe. And the big moves higher get very little notice or recognition in the mainstream media.

And I, you know, I think it's, obviously, there's some correlation there with what's happened in the stock market because you get, you know, hedge funds are especially the momentum oriented ones when they see they'll pile into anything that's moving higher, right? And, and so, I'm assuming that especially some of these momentum-based hedge funds had big positions in the ETFs, and a lot of the stocks. And when the stock market starts doing what it's done over the last week and a half. They sell everything. I mean, anything that's not nailed down in their office. They toss it out and hit bids because they don't.

First of all, because they're levered up, they don't want to get margin calls. And they're also trying to get out ahead of everyone else. So, that was also a factor. And I had been writing in my newsletter for probably a month that, you know, and again, I'm not a big TA Trader but I, you know, you have to pay attention to what, just a simple TA indicators are doing, like, the RSI and the Mac D, and they had gotten extremely overbought technically. And I was talking about, you know, we could use some type of sector correction just to reset the momentum indicators and get some of the froth out of the sector and I mean, you know, as usually happens it happened all at once. So then I guess the issue is, does this keep on going for a lot longer, like, sometimes it has in the past, or do we, you know, are we going to get a bounce here at some point?

So, you know, I would say maybe the worst this gets is GDX goes down to the 200-day moving average. I mean, when we have long sustainable bear cyclical move...I mean, bull cyclical moves in this sector and I think we're in one right now. Usually, the worst it gets when you have corrections is the 200-day moving average. So I'm probably going to start actually allocating some more of my capital slowly back into some of my favorite names, but, you know, I'm not going to jump in all at once because, you know, I always advise my subscribers, you know, save capital for a rainy day because you never know, you know, just how volatile this sector can get both ways.

Craig: The rainy day rolls in pretty fast.

Dave: Yeah, exactly. It quickly becomes a downpour.

Craig: And for everybody listening, the GDX is about 35 as we record this. I think that 200 days down around 33. So that's 6-7%, maybe more now, which could come. We've got, I wanna focus on this, Dave, as we look ahead. We've got this, May FOMC meeting coming next week. We're recording this on Wednesday, the 27th. It's just before 1:00, one week, Central at least, one week from right now, will be getting what I call the FED lines and then half-hour later, Powell's press conference. There are two angles to that, that I don't want to explore with you. And then we've got some questions that people have sent in.

One, the stock market, really all markets...again, not just a mining sector. I mean, there were days last week when crude would be up in the energy sector would be down 3%. This kind of liquidation event that spilled over into futures, like you said, anything's not nailed down, you starts getting sold to avoid margin calls. People try to tie that back to who I call Goon [SP] Bullard, early last week saying that that he wants 75 basis points as soon as this FED meeting next week and some people try to work at that. But that kind of seem to get things steamrolling to the downside.

So as the first question, I want to ask you how much of this, and again, I have a follow-up to this. So do I want to focus specifically on how much of this washback of shares, metals, S&P, everything else is related to this notion that the FED is going to be really hawkish coming out of that meeting next week?

Dave: I think that's a great question because I mean there's obviously a lot of things going on beneath the surface. Not related to Goon Bullard and his plan.

Craig: We'll get there. That's part two.

Dave: Yeah, but it's certainly, you could say, you know, I think what we saw on the stock market at least was probably going to happen anyway, but you could certainly say that Bullard's remarks were a trigger point and also recall around the same time, Lael Brainard came out and advocated higher interest rates.

Craig: Right.

Dave: And she's the, you know, the resident MMT economist on the FOMC committee. So I personally was shocked when I heard her talk about that. And I think it was kinda the Bullard-Brainard combo that was your trigger event.

Craig: Down we went and it looked like we're okay until what was it? Wednesday, I guess, last week, one week ago today. Okay, so now we approached it and maybe that's all it is. But you're an expert, Dave. You've been at this a long time and your expertise in fixed income and derivatives and all the other knowledge and experience you gain, allows you to kind of peel back the onion a little bit more and maybe connect the dots and what other metaphors can I come up with in the next five seconds. Alright. So here's where I'm going with this. The Bank of Japan has had a policy of yield curve control in place for what, a decade more, where they don't allow the Japanese government bond to go above 25 basis points.

Dave: Yeah.

Craig: So all of this hiking by the FED and the 10-year note spiking up near to 10...or 3% and all this kind of stuff, is putting a huge pressure on the Bank of Japan, defend that yield curve control. So, they're printing Yen and buying Japanese government bonds like crazy. And the Yen is just imploding. They're moving the Yen weaker versus the dollar over 10% in just the last couple of months. Now, that, by extension, is putting a lot of pressure on the Chinese who are already been cutting rates while you've been hiking and they can't seem to cut them any further. We send pressure, the Chinese to devalue Yuan. The last time they did that in 2015, the S&P fell 10% in five days.

So I wonder, Dave, is there, and this what I want to get people thinking about and get your thoughts on. Is there this kind of a loop now that can close off? That by the FED threatening to be hawkish and hiking rates puts all this other pressure around the planet, which then drives up liquidity, collapses market. Stock market starts to go down and it completely cuts the FED off at the knees regardless how hawkish they wanna be.

Dave: Oh, I guess what you're asking is, given what's going on with the Bank of Japan and the People's Bank of China, is that gonna give the FED some leeway to back that along its monetary policy?

Craig: Again, in the ECB2, Dave, because all they can...I mean, all the nine trillion euros on their balance sheet. You start marking all that to market on higher interest rates and they're going to all a sudden be insolvent. So yes, that's what I...

Dave: Central banks already are insolvent.

Craig: Good point.

Dave: I've had kind of, in the back of my head. I've kind of had a working theory of really what we're just seeing is a competitive. It's a competition to devalue your currency, you know, we're eventually, they're all gonna devalue to zero, but, yeah, it does seem like these central banks, you know, between China, I don't know about Japan because they haven't been hawkish at all in the last 10 or 15 years, but it seems, like, you know, one will make a move to either tighten or loosen and then the others kind of follow suit. So yeah, you're right. I mean, you would think that relative to what's going on with the Yuan and the Yen and the Euro with, you know, what's going on with the dollar, you know, maybe the FED can say, oh, well, maybe we can ease up our monetary policy. Now that everyone else is, but that's not gonna fix the inflation problem.

Craig: Right.

Dave: So, I guess it kind of just depends on how serious they are about attacking the inflation problem because quite frankly, Bullard's banging the chains for a 75 basis points hike, that's not going to do anything. I mean, they need, you know, just to get if you want to just use the CPI inflation rate, just to get to a neutral interest rate. You have to take it up to what, 8.5%.

Craig: Good luck with that.

Dave: Wasn't the CPI year-over-year 8.5% for March?

Craig: Yeah.

Dave: Yeah. So, I mean, I don't and, you know, and that's why Volker did what he did so abruptly eventually. Now, obviously, our guys, our clowns don't have room to do that. But I mean, you know, nudging interest rates up to even 1%, that's not gonna do a lot. I mean, yeah, it'll slow down the economy and you might put a brake on prices with demand destruction, but you still have massively negative interest rates, and so just by that, you defect or devalue the currency.

Craig: So in the end, Dave, we're listening to the FED next week, and doesn't matter, right? I mean, because, if people listening to us are mainly precious metals enthusiasts, right? They watch the price go up and down and watch shares, go up and down and you got to pay attention, right? And if you want to try to time things, or do whatever, does it really matter? I mean is it all kind of this kind of doom loop at this point anyway and central banks are trapped and there's really no way out of than MMT and money printing. And so, therefore, I would just love the weakness and when it comes and buy more.

Dave: I think that's right. I don't know what else you're going to do. I mean, if you're trying to buy, you know, now the big narrative is, "Oh, we'll rotate into defensive stocks, right? Like consumer staples and defense companies and pharmaceuticals or whatever." Well, that's great. And maybe they go down more slowly relative to the rest of the market. I don't know, or maybe they catch a bid and move higher as money rotates into that. But when you sell that, you still end up with dollars in your account that are being devalued every second. You know, what's the point?

Craig: Right, Zach. Hey, thank, great. I got dollars again. Lucky me.

Dave: That's right. I mean for me I know, you know, I only buy move money, you know, I only buy more physical gold and silver when they get really, really beat up. So, like, right now, I'm not, I'm not really thinking about buying any more gold and silver physical at this point. I think there's still more money to be made in the stocks, but, you know, so like in March and April 2000...or 2020, you know, I started buying some physical gold, and silver again and we were, you know, we were down at Gold got as low as 1200. I didn't even get, you know, ounces of gold that low, but I know that the $1200 that I moved into each ounce of gold or 1250 or 1300, whatever the number is. Now if I wanted to sell it, I'd be getting what, almost $2000 for including premium, 1950. So I'd actually be getting a lot more in FIAT currency. And so to me, that's how gold is supposed to function.

It preserves your wealth, and when it gets undervalued, and same with silver, I don't want to leave silver out. I mean, when I mention gold, it also means silver, I own more silver than I do gold. You know, that's the way gold and silver are supposed to function, they preserve your wealth, but when they get to be ridiculously cheap, and I do think they are ridiculously cheap right now. But I mean, I've got a lot, so I want to wait and see if it gets even cheaper before I buy more then it also becomes an investment because there's some rate of return opportunity in there also.

Craig: Right. Right. Well, I have my friend when we announced you were going to be the guest this month. We had a number of questions get sent in and whenever we do these calls, we always take questions ahead of time. The email address is just the word submissions@sproutmoney.com.

Just as we wrap up Dave, just for quickies for you just to kind of get your thought, wanted to just get your thoughts and see if we can answer some of these. You mentioned, physical silver, and kind of, you know, sometimes it's a good trade and there are various avenues to do that. People have heard me rail against the major ETFs, you know, like, the SLV and the GLD. I think those are a sham but PSLV and PHYS is managed by Sprott Asset Management are just fine. Great, physical metal, backing those.

So anyway, the question, Dave, was somebody wanted to get your opinion on using PSLV instead of physical metal for stacking purposes, exposure to price. That's maybe there's a tax benefit when, you know, when it comes to sell as capital gains, you know... I'm not sure exactly how its treated in Canada, just your thoughts on PSLV?

Dave: Sure. Well, I mean what differentiates the Sprott ETFs from the other ETFs is that there's obviously a much more rigid accountability mechanism so that you know that when you're buying the share of PSLV, you know that the silver is actually in the vault to back that share, right? And it has a convertibility mechanism. Now, I mean, you know, for a lot of people that convertibility mechanism may be out of reach financially, but you know, that's also an accountability mechanism. The fact that a high net-worth guy if they buy enough PSLV, they can, well, I don't think they call you up, they call up Eric and say, "Hey, Eric, you know, I'm going to send you my PSLV certificates, send me my silver." You know, and that that happens.
Theoretically, it's supposed to happen with GLD and SLV but it doesn't. And I've heard horror stories from people who are in a position to know and I don't want to, you know, say who they are. But they've heard, you know, periodically of wealthy guys trying to redeem their GLD shares for 400-ounce bars and they get denied.

Craig: Right.

Dave: So, yeah, I mean, I don't look at PSLV as an exact substitute for stacking silver, but for convenience and for indexing the price of silver and also, for being certain that when we do have that big default event and the Strawman ETFs head south, while the price of gold and silver head north, PSLV and Fizz are going to head north also because they, you know, they are in a bona fide manner, backed by actual physical gold and silver and there's accountability there.

Craig: Yep. That's a good lead into a question I wanna make sure I asked you if you had two or three people kinda give variations of this question. This just gets back to the old gold-silver ratio, you know, somebody mentions here that Eric suggested, you know, return the old bimetallic ratio 15:1. I don't even know what to make it anymore because everything's so levered in this all derivatives and, you know, maybe it's a gold-silver derivative ratio. What do you think? What do you think of that gold-silver ratio? And do you use it in asset allocation? And where do you think it might go to when, you know, things finally shake out?

Dave: Well, the simple answer is that I think the gold-silver ratio is way too high right now. Yeah, it's, I mean, to me that's your best relative value gauge maybe in the whole market because I think silver, I think gold and silver are extraordinarily cheap relative to any other type of financial asset that's available. And I think silver is extraordinarily cheap to gold and Eric's, right. I mean if you there's been certain times when the gold-silver ratio has reverted back to 16 and, you know, times of extreme duress. So, 1929. Gold-silver ratio was 16. In fact, I think the dow-gold ratio went to one briefly, and when we had that big run-up in 1980, gold-silver ratio, I believe I think I just calculated the other day was at 16.

Craig: 16, yeah?

Dave: Yeah, and the dow-gold ratio was at one briefly. So, you know, we didn't quite see that in 2008, but, you know, 2008-2011, but the ratio, the gold-silver ratio did get down to, I think 30, as low as 30 or low 30s, and part of that reason I attribute that to is because the FED acted so quickly, dumping money into the system, to save the banks and the same thing happened in March 2020, you know, the FED acted even more quickly and dumped even more money in all at once and so that that distorted historical ratios, you know, with the dow-gold and the gold-silver ratio, but yeah, I mean, obviously, my view is that I think our financial markets at some point, here are going to fall apart uncontrollably.

And at that point, I think, yeah, I think, will the gold-silver ratio get down to 16? I don't know, but I think it least gets cut in half from where it is right now. So yeah, I think it's a very useful indicator to, you know, if you're judging whether you should be buying physical gold or physical silver, you know, which one do I buy? Well, where's the gold-silver ratio? Is at 80 now. Well, then I'm gonna, maybe I'll buy a little bit of gold or I'm going to buy a lot of silver.

Craig: Yeah. Here's a question, Dave, that kinda gets to your experience with the mining shares and it concerns buyouts. How many acquisitions would have major or mid-tier minor conduct in a cycle? Do they generally pay for their acquisitions relative to their market cap? I mean, how big of a bite can you, you know, take of the apple? And is that something that we should expect more of because they've already been increasing dividends and share buybacks and things like that?

Dave: Yeah, I don't think there's anything formulaic about, you know, how many mid-cap, small-cap, and juniors to the large-cap guys swallow, you know. But yeah, up until the last few weeks, you know, we were starting to see a fair amount of acquisition activity in the sector, and actually Kinross over the last couple weeks, they unloaded their Russian mines. If you remember the old Bhima gold back in the early 2000s that was one of the Russian mines is Bhima Gold, I used to own Bhima Gold, and then they just sold a mine in Ghana to, I think it's called, like, Asante Gold. I actually want to take a look at this company. Yeah, Asante Gold, they sold a mine to Asante Gold, which is a junior, and I took a look at, you know, what they bought and I was, like, "This might be cheap", so, you know, and obviously the two big acquisitions were Kinross buying Great Bear and Agnico Eagle buying Kirkland Lake, and I think once Agnico Eagle gets Kirkland Lake digested, I think they're gonna be on the acquisition trail again.

So, you know, and the hot areas that I'm looking at for acquisition possibilities would obviously be Northeastern Canada. Possibly British Columbia, Nevada, maybe Mexico, you know, I think some people are getting frightened away by what seems to be more rigid, anti-mining standards being imposed there but I think that's more talk than reality. And then, believe it or not, West Africa. I think West Africa is extraordinarily cheap right now or undervalued and so, you know, I think, once things stabilized again and we start heading higher and especially if gold holds over 1900 and silver can get into the high 20s and stay there and move higher from there, I think you're going to see M&A activity pick up a lot.

Craig: Alright, what one last question, Dave, because I know this talks been in the news and someone sent this in, wanted me to ask you. It comes up often, in my TF Metals Report, too, what you think is Pure Gold deal? I know Eric's financing company quoted some cash here recently, kinda keep them afloat. What are your thoughts on it?

Dave: Well, if I share my thoughts, it's gonna be front-running my subscribers who get my thoughts tomorrow afternoon. I can comment on it. I've been writing about it a lot lately. I've actually followed Pure Gold and, you know, I first invested in it in summer of 2016 at, like, 30 cents. And so I know the company pretty well and, you know, I've ridden with it through the ups and downs. And I mean when they issued their Mea culpa at the end of March about, you know, what was wrong with the mine operation? I mean, unless you were on the inside of that company, you had no idea. And I've spent a lot of time talking with the company about it and I'm convinced that it is going to be a successful turnaround situation. I am convinced to that and, you know, I think Sprott is probably convinced of that, too, because Sprott Resources gave them the waiver on their debt payment and they made a six million dollar credit facility available to them to give them some liquidity.

And my understanding is, I think Eric's gonna participate in the equity offering that they're out there with and I'm pretty sure AngloGold is going to, and, you know, it's unfortunate because I know my average cost is much higher than where it's trading now, and, you know, I was recommending it at much higher prices, but I think now is an opportunity if you invest in it to get a lot of your money back and average down and maybe eventually make some money. I mean, it's not a problem with the asset itself. It's not a problem with the deposit. It's not a problem with the metallurgy. Everything that they ran into had to do with human error and those errors were magnified by the, you know, the COVID lockdown situation when they were in the startup phase.

So, I mean, I've actually intermittently over last couple weeks, I've been adding to my position down here, you know, I've got some as low as 12 cents in US Dollars and I was gonna buy some more yesterday if the entire stock market wasn't, you know, wasn't digging for China's. So yeah. No, I think if you assume that, you know, our markets aren't gonna completely melt down and that the precious metal sector is going much higher. This is one of the better risk-return plays out there, and I think there's a lot of upside in the stock potentially.

Craig: Well, I think, you just expose the value of what you do. So please, as we wrap up, Dave, tell everybody again, you go to investmentresearchdynamics.com and look to sign up for the newsletter.

Dave: Well, there's links there to my "Mining Stock Journal" and my "Short Sellers Journal." And if you click on the link, you can get some information about what's involved and I don't have a minimum subscription period requirement. So that's how it works.

Craig: Awesome.

Dave: I probably should but I don't.

Craig: Well, again, Dave, thank you. We've been speaking with Dave Kranzler, the publisher of "The Mining Stock Journal," all-around, good guy. And I think is probably something that everybody is enjoyed listening to. Again on your way out, please be sure to thank Sprott Money for this content. You can do something as simple as a like or subscribe to whatever platform you listen to. Or, of course, visit their site. I mean prices are certainly on sale versus where they were about two weeks ago and the old adage at my side is, you always got to be ready to sell some when things look the most rosy and buy some when things look the worst. I'm not sure where maybe the worst yet, but certainly not as rosy as it was a couple of weeks ago.

Sprottmoney.com, great deals on physical precious metal, and storing that metal. If you want a safe secure place to put it. Please be sure to check them out and give them a call at 888-861-0775.

Dave Kranzler, thank you so much for your time. I've kept you longer than I promised, but it's valuable stuff. I really appreciate it.

Dave: Thanks for having me on again, Craig, I appreciate it. It's fun talking with you.

Craig: It's always fun to talk to you, too. And from all of us from "Sprott Money News" and sprottmoney.com, thank you for listening. We'll see what the month of May has in store for us.