The Tide Has Turned for Precious Metals - Monthly Wrap Up

Man: You're listening to Sprott Money's Monthly Wrap-up with Craig Hemke.

Craig: Well, welcome back to the "Sprott Money News." Sprottmoney.com monthly wrap-up. Gosh, where'd the month of January go? But here we are. It's January 31st, and it's time to wrap it up and look ahead to February. I'm your host, Craig Hemke. Joining us today as an old friend, Bob Thompson, who is a senior account executive. Bob, is that the right term for you? What...

Bob: Sure. Senior Portfolio Manager. Same thing.

Craig: Senior Portfolio. I knew it was senior something. At Raymond James in Vancouver. He's an old friend of Eric Sprott, that's how I've gotten to know him. But boy, he's wired into the mining sector and the mining industry and so it's always good to check in with him every once in a while. So Bob, nice to have you on for the monthly wrap-up.

Bob: Yeah, great to see you, Craig. And we just had our Vancouver Resource Investment Conference over the last two days here in Vancouver. So everybody was in town. A lot of good information.

Craig: Did they drink the whole town out of Irish whiskey and scotch?

Bob: Yeah, it was a little rough. It wasn't as bad as PDAC, but yes, there was lots of nice events happening.

Craig: I would imagine they've got truckloads coming in to replenish things. Well, anyway I'm gonna have you kind of let us know what you saw there, but before we get started again, just to remind everybody that this content and everything you get over the course of the month is made possible by Sprott Money. They should be an online bullion dealer of choice for you every time you're in the market. Go to sprottmoney.com, check the deals tab. You'll find all kinds of great deals there all the time. Great deals on storing your metal too. And if you wanna actually talk to a human being, you can do that. Give them a call at 888-861-0775. Bob, let's start with the Vancouver Conference. What was the tone and the sentiment like there? You know, we finished the year okay. The mining stocks actually outperformed the S&P. Gold and silver actually both up a little bit on the year. But what was sentiment like at the conference?

Bob: It's actually okay, you know. And it's interesting you asked that because I am a big contrarian, right? I love it when conferences have nobody that shows up, right? And when there's hundreds of thousands of people, they're like, "Oh God, we've gotta [inaudible 00:02:16.252] question." Now, this year, the attendance was about half of probably what it was in 2012. But it was a lot better than last year, right? So anyway, it was good, sentiment, it was okay. I don't think it was extremely bullish or extremely bearish, but having said that, you know, just in the [inaudible 00:02:33.208] the financing window has opened up again for... We see a lot more financing starting to happen than were happening before. And that's a good sign. But I do love everything in moderation, Craig, really. Because remember we were talking back in September, 2020 and it had this massive flood of kind of new issues or private placements in the sector. And I thought, oh, this is a bit of a contrary sign, right? You know, I remember I said at the time, I said, "It's not the start of a secular bear market, but it definitely we're in need for a big pause." So, I like kind of things to be steady and they've definitely picked up in the financing area. So that's a great thing.

Craig: Spoken like a guy who's been around the block a few times, Bob. And yeah, it's like another guy that's been around the block a few times is Eric. And his line has always been, you wanna be the only guy in the room at the party, right?

Bob: That's correct. Yes. Because you gotta be there when it happens. Because it happens in a relatively short period of time, and if you're not there, you're getting in in the last third of it. And, you know, we all know that situation. The market, Craig, is programmed to have the most amount of money lost by the most amount of people. So in other words, most people lose money. And when you think of it mathematically, it has to work that way. Not everybody can become wealthy, only a small percentage can, right? So you gotta be doing something different than everybody else, and that's sitting in the room when nobody else is there. So that sentiment's big. Sentiment is big not just in the stock market, in the bond market, but in precious metals for sure.

Craig: And you think, Bob, a lot of people wait and wait and wait and they wait and then the train leaves the station and they're playing catch-up and all that kind of stuff. I know you were there with Eric 20 years ago when he started his hedge fund. You've gotta have the courage, your convictions to get in there when everybody else hates it.

Bob: That's right. And then let me just mention one thing here and then I should talk about 2001 because I think we're very, very close to that right now. Now, you know, what's very important is you have to know whether you're in a primary bull market or a primary bear market, right? I happen to agree with David Brady, right, who you talk to frequently. He says we're due for a pullback here, right? It's gonna be very, very healthy to have a pullback. But once that happens, it sets a new base, then we're onto new highs. And why should you have conviction to buy when it goes down? Because we're in a bull market here. In bull markets, you buy the dips. Very, very important. Buy the dips in bull markets. In bear markets, you have to sell the rallies. That's what's really important.

Again, we happen to think we're back in 2001, the bear market for the general equity market, and people are buying these dips, right? And I think that's exactly the wrong thing to do in a bear market with stocks because it just goes lower. And then you buy that dip and then it goes lower. And by the time you're seven dips down, you don't have any money left, right? So, we're in a precious metals bull market here, in commodity bull market buy the dips, that's for sure. But wait for these pullbacks to happen. Now, you know, going back to 2001, you know, I don't think I'm that old, but I feel really old a lot of times in this business because I've been in the business 27 years now. I saw the whole tech bubble that happened. You know, everything that was happening in 2021 with the meme stocks and all this sort of stuff was exactly the same thing that was happening with the dot coms back in 2001. And guess what was getting shunned? Commodities at the time, precious metal stocks, because there's only a limited amount of capital in the market. It sloshes back and forth, right? And if it's chasing all these other things, it's not gonna be going after the value names in the precious metal space. So, that's ending.

But remember, bull markets, the stronger the bull, the harder it is to kill the bull, right? You got a strong bull, you gotta put a lot of swords into it to get. So that's why bull markets in these equity markets, they keep rallying back. They keep rallying because they keep wanting to come back. So it takes a lot to kill a bull market. And you remember back in 2011, 2012, it was two years of the end of a bull market for precious metals when we think of it at that time, and now it was hard to kill it, right? It kept coming back, it kept coming back. And that's what's happening with equity. So, you know, back in 2001, Eric recognized this, and I knew him at the time, and you know what he did? He didn't run a hedge fund before that. But at the end of 2000, I think it was August, September, 2000, he said, "I'm gonna start up a hedge fund because I think precious metals are the place to be right now. And I think there's a massive, massive bubble in tech stocks." And you know, the NASDAQ collapsed in March of 2000, and then it rallied all the way back and hit its high again in September, October of 2000, right? That was trying to come back. People were buying the dip and then it did it again and did it again. But obviously, it ended 2002 down 75% over where it was two years before.

So, Eric started up his hedge fund, simple trade, I mean, I make it sound simple, but he went long, precious metal stocks, he shorted tech stocks, and in the next two years he was up 200% in his hedge fund, and...

Craig: Not too shabby.

Bob: Not too shabby. And you get these vicious bear market rallies, kind of like what we've had here in January here with the general markets again, right? You know, Eric had a policy and I talked to him at the time, I said, "You know, when you're short, do you cover your shorts, you know, if they're up 15% or you're down or whatever the case is?" And he said, "Nope." He said, "I don't worry about that. I just know where the stock's going. I don't worry about the bear market rallies. I just..." No, it takes a lot of guts to do that, right?

Craig: Yeah.

Bob: But I think having said that, that's why I think we're back in 2001 again. You know, interest rates, inflation, oil prices, you know, the Fed ready to pivot, they haven't yet, but in 2001 they reduced rates by 4%. So, we're right at that area right now. And history doesn't repeat itself, but it does rhyme and it just feels with the precious metals, and you see this every day. I mean, today we are down $15, $17 on gold and then kind of, when the market opened, it rallied back. So, it feels like a beach ball that you're trying to keep underwater and you just can't keep it underwater because it keeps popping up, right? That's what it feels like right now with precious metals, and, you know, I think it's a really good place. Hopefully, we get a good correction here and it pulls back quite a bit. Then we can reload at some lower prices, but...

Craig: Well, and we did have quite a rally to finish the year, whether the medals were anticipating the macro changes that certainly seem to be coming this year or not. I mean, silver went from 17.50 to 24.50 in a couple of months, and gold went from 16.25 to what? A recent high about 19.50. Those are tremendous rallies. Again, nothing goes straight up all the time, so there's likely to be a pullback. What, Bob, do you see as we now move into February and beyond, what are those macro factors that you think, you know, will reignite or push along this bull market in the metals?

Bob: Sure. You know, I was talking to Eric last week actually, and we were talking stocks, we were talking markets, but he was wildly bullish about one thing. What do you think it would be? What would be...

Craig: Silver.

Bob: Silver, there we go. When I talk silver, I could see the smile, you know. We were on the phone, I could see the smile on his face wildly bullish on silver. And I think there's a lot of reasons for that right now, if you're in precious metals bull market, silver does better than gold, generally speaking. But there is a big industrial component to silver too, as we know, which is great. You know, gold, you kind of take it out of the ground over here and you put it in the ground over here in the vault, right? And that's fine. We're getting a lot of central bank buying. A lot of people are buying that weren't buying before. But silver definitely has industrial uses. So, from that perspective, from the perspective of it as a monetary metal, from the gold-silver ratio, from the deficit now, I mean, we've got people like the Silver Institute, which never said before that there's gonna be a deficit, and suddenly there's big deficits going forward here with the EV and all the other things. So, silver being a byproduct, 70% of it, you know, just as a byproduct of copper production and the other base metal production.

So, as silver prices go up, it doesn't necessarily mean that supply's going to come onto the market because more depends upon copper supply. And having said that about silver, you know, Ross Beaty, one of the big guys in this industry, obviously I was speaking at the Vancouver conference yesterday, and it was quite interesting to hear him say this. He said, "Never in my entire career, it's a long career." He said, "have I seen all of the metals lined up the way they are right now for a wildly bullish market going forward." And he said, and especially in the juniors. That was quite something from Ross Beaty who's been in... He's seen lots and lots of cycles, he said, never before, he said, all the metals lined up right now, whether it's copper or precious metals, etc. So anyway, that was fantastic, I think.

Again, we get a nice pullback here. You know, the Fed's gonna have to be... You know, the Fed's gonna have to be hawkish. I think they're gonna be, because what happens is, you know, they might only raise 25 beeps, who knows, right? But they'll talk hawkish, and I think they have to because this market has rallied big again, right? I mean, I really want, you know, the index that looks at, you know, how tight financial conditions are, I want that to be tight right now, right? But it isn't, it's looser than it was a year ago, which, you know, people just keep coming back in and causing these, you know, these stocks to rally, the tech stocks and everything that is in a bubble. So that's okay. You know, if they raise rates and they're a bit hawkish, might set us back a few weeks again. But, you know, the tide has turned and I think we're doing very well for precious metals.

So go back, think of what Eric did back in 2000 at the end of 2001. I mean, it's not gonna be exactly the same with that, but I really do think we're gonna get that severe outperformance. And when it starts to outperform, again, the money just sloshes from one market to another. You know, all these hedge funds just say, oh, you know, our big tech positions aren't doing very well anymore. They're just giving back everything we did. What else is doing well here? And all they have to do is move a small amount of money into the space. Do you know, I think one-half of 1% of generalist portfolios is exposed to precious metals right now, right? And as we know, that's been about 2% in history, in wild [inaudible 00:13:03.589] markets that'll go to 3% or 4%, right? I mean, that's eight times what it is right now, right? So it takes a little bit in this sector and it's big, but you gotta be there.

Craig: Think about how much cash that is now that, you know, with the Fed's balance sheet being what it is, the amount of investible cash slosh around the planet, like you said, Bob. In our remaining time, Bob, let's focus on, you know, what you do for a living as a portfolio manager. I know you're close to the resource sector, obviously, being based in Vancouver. You know, a lot of folks came out of 2022 frustrated because, you know, at one point, well, Newmont fell 50% from 84 to 42, and the GDX fell dramatically as well. But at the end of the day, when it was all said and done, the GDX was down 10% on the year, and the S&P was down 20. Now again, I mean, hey, how do you want... Do you wanna die by 20% or you wanna die by 10%? You know, you're still dying. But nevertheless, that year-end rally did kind of make it look a little bit better. And obviously, the shares have performed pretty well here in January. If you could just kind of give us your thoughts on the sector as a whole, and then also, you know, you're famous for your mining clock. Have you moved that clock recently? Where are we on that little proprietary model of yours?

Bob: Sure. And yeah, just to go back to what we do, I mean, I'm a portfolio manager. I can invest in any sector anywhere, right? And I think that's important because it gives you this big [inaudible 00:14:35.582]. Sometimes you can't see the forest for the trees, but we focus a lot on the mining sector. We deal with high-net-worth and ultra-high-net-worth mining executives. So very circular industry. We capture these returns, we can diversify and protect their assets, that's what we do. So you gotta kind of know about every market when you're doing that. And just to go back to what you said about 2022, I mean, you're absolutely right. I'm getting tired of talking about 100-year events happening every one or two years, right? And that's what's happening, whether it's 2008, whether it was COVID, and the market dropped 37% in 6 weeks, or whether it was 2022, which was the worst year in 127 years for a balanced portfolio, a normal balanced portfolio. No precious metals, just stocks and bonds. Bonds were down 15, stocks were down 20. I mean, that was worse than '08. So worst in 127 years.

So, yeah. I mean, a lot of people in this industry, in the precious metals industry were downtrodden, thinking, oh, things are terrible. It was a great year, 2022, the gold was flat, silver was flat approximately. Now, why did the miners do well? And let's talk about that for a second, because when you had an inflationary environment like we had in 2022, and the Fed raised interest rates the fastest that they've ever raised interest rates in 100 years, there's another 100-year event. What happened is, you know, the big stocks out there whose cost... Precious metal stocks whose cost production might have been $1000 an ounce, it rose to $1,300 an ounce, right? So, if your underlying metal is flat, but your cost went up a lot, your profits got squeezed, [inaudible 00:16:10.504] went down, it actually makes sense when you think of it from that perspective, right? So, sure, the gold stocks, GDX, ended the year, you know, down 10. It was down a lot more at some point, but it makes sense that it was down, that was the first phase. The second phase is now that hopefully inflation's under control, or things have stabilized in that area. Now, if gold goes up in price, you're gonna start to see the profit margins expand pretty rapidly. And then that's when you get the gold stocks outperforming pretty substantially.

Now, the juniors, which a lot of people here invest in the juniors. Sure, the juniors were destroyed. They were decimated last year. Not because they were precious metals juniors, but because they were juniors, right? I mean, it was a risk-off for everything, right? I mean, the TSX Venture Exchange, the Canadian Venture Exchange was down over 40% last year, right? It was one of the worst years in history. So when a market's down 40, there's a lot of stocks that are down 70, and there's a few that are only down 20, right? So, that was kind of that situation, but they'll pop back. So hopefully that explains to the viewers kind of a little bit about, you know, why the gold stocks did worse than gold going forward. But again, the markets tend to look through that, the stocks are starting to do pretty well. The silver stocks haven't really responded yet. And that's, I think, the market telling you that they're not really sure about the silver rally yet. But that's okay. Let's pull it back, you know, 5%, 10% on the silver price, and I think that'll set us up for a great rally going forward here.

Craig: So again, heading through this year, feeling generally optimistic about the macro environment being conducive and supportive of prices of metals and shares.

Bob: Absolutely. And what you said on the mining clock, then yeah, we are gonna move up the mining clock a little bit. We haven't moved it in a while, but the mining clock, to some degree, is like a credit clock, right? It's the amount of money that comes into the sector, makes things happen, right? Nothing's gonna happen if no money's coming into the sector. I mentioned the financing windows opened up in the last few weeks. We're starting to do more and more... The market's starting to do more and more financings, that's gonna cause more discoveries, that's gonna cause the clock to move ahead. So we'll probably move it ahead a little bit going forward here, but I do think it's very important we're in a primary bull market to buy the dips in a bull market. And you hope for the dips, you hope for the dips so you can buy more, right?

Craig: Right. Bob, if Canadian listeners want to reach out to you, how do they get in touch with you?

Bob: Sure. We do a monthly publication called "The Gold Digger" that's, you know, targeted towards mining executives, but talks about the industry in general. And you can certainly email Thompson Investments at thompsoninvestments@raymondjames.ca and we'll send out that "Gold Digger" to you. But yeah, I think, you know, there's lots of valuable information for people in there in the cyclicality and the circular nature,

Craig: And, I don't know, people follow some of the interviews I give, I've said that repeatedly all this month. I mean, this is gonna be a year where you need as many independent and objective sources of information as you can find. Because if you're just listening to the mainstream stuff, you know, the "Business Network" or the "CNBC," something like that, they're gonna wrong foot you every time in an environment like this.

Bob: Most of the time.

Craig: So, if Bob's willing to share that with you, be sure to, again, thompsoninvestments@raymondjames.ca. Correct?

Bob: That's correct. Yeah. And, you know, make sure you own physical too. I mean I got a lot of stocks, but I got a lot of physical and, you know, I do hold my physical with Sprott Money. They send me a report every few months.

Craig: My final segue right there, again, remember, Sprott Money sponsors this content. Go to sprottmoney.com or give them a call at 888-861-0775. Or at least, if anything, give them a like, or a subscribe on whichever channel you've been listening to this podcast, that helps them cast a wider net, get the message out to more and more people. And that helps everybody. Bob, thank you for helping everybody. It's always fun to talk to you. You're always very insightful and I look forward to visiting with you again in a few months.

Bob: Great, Craig, we'll do it again. Okay.

Craig: Sounds good to me, my friend. And from all of us here at "Sprott Money News" and sprottmoney.com, thanks for watching. We'll have a whole bunch more great content for you in February.