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Weekly Wrap Up

Summer Doldrums Set to Give Way to “Crazy” September for Precious Metals - Weekly Wrap Up (Aug 28, 2020)

Cover image for WWU with Eric Sprott

August 28, 2020 

After a typically-quiet late August week, it’s time to look ahead to what promises to be a busy month of September for precious metals investors. Host Craig Hemke and legendary investor Eric Sprott break down all the gold and silver news you need as we head into an action-packed fall.

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

  • The “toxic stew” that’s good for precious metals
  • Why silver is about to “go crazy”
  • Plus: how Eric looks for opportunities in silver

“Things have kind of cooled out here. We have signs that things might cool down even more. As an example, the airlines are all saying, ‘Well, we can’t keep the employees on any longer, because the government support is running out.’  We’ve got surveys of businesses that suggest people can only hold on for a month or three months, and that’s so easy to understand. I mean, these people have businesses where there is no business.”

Man: You are listening to the "Weekly Wrap Up" on Sprott Money News.

Craig: Happy Friday from Sprott Money News and sprottmoney.com. It's the last Friday of August, August 28th, 2020. Time to put the summer doldrums behind us with our last "Weekly Wrap Up." I'm your host, Craig Hemke and joining us is someone who's never in a summer doldrum, that's Eric Sprott himself. Eric, good morning.

Eric: Good morning. And it's hard to be in the doldrums with what's going on in the world of finance and sort of how it affects the precious metals. And yet again, we've had a week when some pretty big decisions were made, which should do very well for precious metals.

Craig: You got that right. We may wish for the doldrums once we get into September. It's gonna be a crazy month. Hey, before we get started, we've been introducing for the last couple of weeks, the new sprottmoney.com website, warning people it was coming, that we're gonna be offline so we could put it up. And now it is up and live. Please, we want everybody to go check out sprottmoney.com. Very excited about it on our end. We launched it last week.

You can search easily for this "Weekly Wrap Up," other information on there, blog posts, ask the expert segments, any news item or any specific product that you're looking for. You can do this all faster than ever before. Our online checkout process is lot easier with even more security, so you can purchase with confidence. But hey, you can always call us too. We got great deals on all bullion needs for you. So give us a ring, 888-861-0775. That bullion keeps flying off the shelf my friend, because those prices just look better and better. The macroeconomic environment, the stuff we got from the Fed this week, man, oh man, it's good to be in the precious metals.

Eric: And I might even add the whole economic outlook thing where, you know, we thought we were gonna have this deep autumn, but it's certainly...I mean, we had a mini V for a couple of months because we went down so much, but things have kinda cooled out here. We have signs that things might cool down even more. As an example, the airlines are all saying, well, you know, we can't keep the employees on any longer because the government support thing is running out. We've got surveys of businesses that suggest people can only hold on for a month or three months.

And that's so easy to understand. I mean, these people have businesses where there is no business. And God forbid that the landlord's demanding the rent check and the city's demanding the taxes and etc., etc., because it's hard to pay it when you don't have the money coming in. So I think things are gonna...we'll see signs of cooling down here as we go forward economically.

Craig: It certainly looks that way. And you know, the Fed is going out of their way, doing everything they can to convince everybody that they're not raising rates anytime soon. To me, that's what that announcement was yesterday, just further trying to make it as perfectly clear to everyone that through at least 2022 rates are staying at 0% and that they're gonna allow higher inflation, so that nobody has to worry about hiking rates if we get some inflation. Regardless of the reaction yesterday, Eric, that's a pretty toxic stew, good stuff for us.

Eric: It's great stuff. I mean, you know, I've been a great believer that inflation runs way beyond the Fed calculation. And I base that on Shadowstats's number, the Chapwood Index, real living, living day to day, seeing what's going on, the price of lumber goes from $250 to $800. I go into a restaurant and I see seven entrees that costs over a hundred dollars each. I never saw that before. So there's lots of things that suggest inflation's already higher, but the fact that the Fed comes out and says, "We wanna make up for lost ground," versus their calculation, which is still below 2% suggests they're gonna let her loose here.

And you know, if you wanna protect yourself, there's not many ways of doing it when you start with the 10-year bond yield at 60 basis points. That's not gonna help you. So more and more people are going to gold. And strangely enough, it seems to be people that think like bond owners that are the people most likely to go to gold and silver.

Craig: And I know you had some thoughts you wanna share with everybody on the dollar too. And I think that's important because there... You know, I go to Twitter, I see all kinds of people looking at their charts, you know, and saying, well, the dollar is gonna do this, the dollar's gonna do that. You don't wanna fight the Fed and the Fed is trying to spark inflation and you cannot spark inflation through a higher dollar. And I think that's a pretty important point.

Eric: Yeah. And it's interesting. I have some thoughts on the action of both the dollar and gold yesterday. And of course the dollar ended up basically flat yesterday and gold ended up down yesterday. And I've always been a great believer that whatever the proper answer is, reaction to the Fed announcement is you won't see it that day. In other words, the Fed does not wanna see a headline that says it will allow inflation, gold rises a hundred dollars. That ain't gonna happen.

So much as whether your initial reaction was to drive gold up, dollar down, the dollar ended up flat on the day, gold ended up down 25 bucks in a day. And I think it's all orchestrated to keep in essence that the Fed equation sign out of the limelight. Now the next day is a different story. So now we have the next day when no one's going to make that equation. And here we have the dollar with a big decline today and so far gold with a very broad advance as...the same as silver. So I think that it was rigged lower yesterday with purpose because the Fed doesn't want their actions to be, in their mind, misinterpreted, even though they weren't.

Craig: Yep, spoken like a guy that's been watching it for a while. That's for sure. Because you'd start to see those correlations. No doubt about it. How about, Eric, we've navigated our way or very close to navigating our way through the Colmex silver contract, going off the board. And pretty soon we'll be looking at December for our front month options and futures and stuff, but we're getting this September stuff behind us.

Eric: Well, September the open interest is still about 14,000 odd contracts with 70 million available, scheduled possibly for delivery. I'm not sure whether that number will change much. First notice day is Monday. And as you wrote on Sprott Money recently, back in, I think it was April, I'm not sure of the exact...there was an 85 million ounce month. It was a...something like a...

Craig: That was July.

Eric: Was that July? 85 million in July and then April was, what, 45 million or something?

Craig: Yep, it's been growing just like...

Eric: If we get another big month here in silver, we could say that between May and September, we get 200 million ounces, that's for delivery, something in that area. Okay? And you know, as I've said, many, many times, we only produce...or a mine 800 million ounces. The ETFs have grabbed almost 300 million and now potentially Colmex will do 200 million. Hey, you're explaining 500 million of 800 million, and most of that 800 million is supposed to go to industry, not to savings.

And I'm not even using the coins. I'm not using what's happening in other countries. I'm not using what's happening in the LBMA. And in my mind, there is a huge, huge tightness in silver here, and I think we'll get some failures to deliver. And that to me is the whole play as I've described before. I believe that we have had 35 years of manipulation of the precious metals prices, particularly silver because it was so easy to distort because it was such a small market.

When you think of last year, with even a billion ounces of silver, with an average price of 50, it's only a $15 billion market. You got 10 major banks, all leaning on the damn thing with money in the derivatives market. Now all of a sudden five of them have already paid fines and admitted...I guess, paid fines for excluding whether they admit it or not. I'm not sure what that word is because no one ever seems to ever admit anything anymore. They just pay the fine to get rid of the investigation. But you had five major banks pay those fines, which is to me, evidence that they were all leaning against silver.

And now you have in total, almost a billion ounces of silver short in the Colmex almost...let's call it...it's probably about 850 million today as of the close today, 850 million. Somebody is short 850 million ounces and there appears to be no silver available. So what's gonna happen when people keep demanding delivery? I just think the silver price could go crazy. I believe because it's produced at roughly a 10 to 1 ratio, it's in the years crested at 12 to 1, as a currency it was 15 to 1, and it's going back to 15 to 1. I know a lot of people will have difficulty with that, but I don't.

When I look at, for example, the trading volume in SLV versus GLD, there's 30 times more ounces of silver bought every day than gold, 30. There's only something like four and a half times more silver to be available for investment than gold, but people buy it 30 to 1, and mint sale is at 30 to 1. All the evidence is screaming at you that this ratio is ridiculous and it's because of the segregation of paper from real. Well, I think that segregation is over now and we're gonna have some serious action on the silver front going forward.

Craig: We should take a second and you should tell people how you spend your day as an old retired guy, because I know most of the time you're sitting there, you know, in your rocking chair, dozing off, you know, stuff like that, taking the long naps, going out for early bird specials at dinner and stuff like that. But in between, how do you spend most of your time, Eric?

Eric: Well, I am spending a lot of time researching investment opportunities that have something to do with silver. So for example, there was a very interesting revelation here, as we all know, all investors file 13Fs which show their portfolio holdings and they file them before the March quarter, the June quarter. That's the Warren Buffett thing when he ended up showing that he bought 20 million shares of Barrick, that was in the 13F that he filed on Barrick. And we have 13Fs filed on the SLV, the silver trust, and here are the guys who bought this recently, Morgan Stanley, UBS, CTC, BlackRock, Bank of America, Wells Fargo, Royal Bank of Canada, BNP, SocGen and Raymond James, Barclays.

A lot of these are first time buyers in the June quarter. And we're not talking littles here. And the list goes on and on and on and on. You know, whoever would have imagined that kind of account buying silver? Are you kidding me? But you know, there's even more reason for it today. So what do I do? I spend my time looking for silver opportunities. They're not easy to find because there's so few of them. And I picked over the list so many times they don't wanna tell you. But now one of the things I do is I actually look at gold producers who say, well, you know, we have...let's say some gold producers say, "Yeah, we got 20 grams of silver, but it's really worth nothing in the yard." And let's use...they've got 15 grams of silver, but it's worth nothing. Okay?

Well, you know what, if silver goes to 15 to 1 to gold, that's 15 grams of silver is worth 1 gram of gold. And if his deposit was 1 gram of gold, now it's 2 grams of gold. And 2 grams of gold is probably five times more profitable than 1 gram of gold because it's all bonus money. So I'm looking for things like that, where you can see where maybe the silver contribution is being unwarranted in the market. I was even looking at it in Tudor, for example, their recent drilling, they're coming up with about 5 or 6 grams of gold. If it was 6 grams divided by 15, that's worth 0.4 of a gram of gold.

Well, when you're only starting with 1 gram of gold or less, 0.9, and you add 0.4 to it, and it's a giant deposit, that's a very significant contribution. Now we're not at 15 to 1, but my brain is telling me we're going there. You don't have to pay for it. That's the beauty. Nobody's paying for this yet. It's all bonus time. So I spend my time looking at that. I think I mentioned last week that another company called Benchmark Minerals has big, big silver in their results and so much so that the silver at 15 to 1 will be more important than the gold. So that's what I keep looking for.

I keep looking at the management presentations. I looked at the one from Discovery Minds recently, one from Silver Crest. I just spend all my time looking for silver opportunities that the market has misunderstood.

Craig: And your time is valuable. And the fact you're spending that much time looking at silver should give some idea to folks how valuable you think those opportunities are going to be going forward. We have, Eric, jeez, about 40 questions this week and we always invite your questions. You can email them to us at the word submissions@sprottmoney.com. They get on the list, Eric and I go through them. And I always ask Eric, but if he doesn't have an opinion, doesn't know anything about it, we're just simply not gonna spend time talking about it. But we do have some this week that are on the list. Eric, can I...anything else in your mind before I lay a few of these on you?

Eric: Oh yeah. I have one other thing I wanna say. I was speaking with the director of a gold mining company, and I said, you know, when your costs of production are $1000 and the price is $2000, if you had just kept the gold, you would reduce the gold supply by 50%, right? Half your margin is 50%. And same with a silver producer today, with the price at $27 and his cost is whatever, let's say $13.50. If he just didn't sell the silver, there'd be 50% less silver per sale. What would the price do?

Now, it's very unfortunate I find most people who run mining companies think about mining and not the metal and the price of the metal and what could happen to the price of the metal. And because they don't anticipate...you know, like how many guys anticipated when gold was $1300, it's going to $2000 in about 6 months? Not many. And how many anticipate that gold could trade at...silver could trade at 15 to 1 to gold, 15 to 1 to gold? That's $166 of silver. I know it seems ridiculous. Just talk to me in two years, okay? And we'll all see how ridiculous it was.

So anyway, there's lots of opportunity here for the industry to self-help particularly when they've been bombarded for the last 35 years by a bunch of commercial banks controlling the prices of the product. Maybe they could help that product along. And I certainly try to do that in Jaguar Mines that I own 100%. We invested $4 million in silver, even though we're a gold buyer because I think silver is a better thing to buy. But imagine if some other guys with all the cash flow they had started buying the metals instead of having to see at dollars. Why do you want to see your dollars for? Wow.

Craig: Exactly. Very good advice. Hopefully more people start to listen to it. First one on my list, my friend, is something called New Found Gold, New Found Gold. How do you wanna address that one?

Eric: New Found Gold. Yeah, New Found Gold, it's a company that I own some reasonable percent of, I don't know whether it's like 12% or something. I would have purchased that probably six months, six, nine months ago. They had a big hole. I think it was 96 grams over, I don't wanna get this wrong, but I'm thinking like 40 meters or something. It was a huge discovery hole. They actually announced that they have some grab samples that are, I think they said 8 kilometers north of where the initial discovery was, where the grab samples at very, very high gold content.

And I think that the whole theory is that there's a structure that actually believe it or not, goes all the way through Newfoundland and right into Ireland where they were connected at one time and down to South Carolina where there's the same line. And then it's a goal bearing structure and Marathon Gold has found some on that structure. Now New Found found some on that structure. I think there's been other discoveries along that structure. So it might end up being a whole new kinda camp sort of thing, but so far New Found has done very well.

Craig: All right. I thought this was an interesting question too, is about Freegold Ventures, which is one that you first introduced us to back in may about 25 cents U.S. and now it's, I think over a dollar. This gentleman said he had written in and said, you know, what are they doing with their drilling up there? They could be drilling a lot deeper and finding a lot more grams per ton, but instead they're drilling and trying to define their system laterally. What are they doing? What's the thought behind that?

Eric: Sure, sure. Well, first of all, it's easier to drill laterally because you don't have to drill as deep. So in other words, I think they've got down to 550 meters on the first hole and now they're...the second hole was gonna be a lateral hole that would go to about the same depth. And they've gone back to where the first hole was discovered and they've done holes very close to it trying to extend what they call the strike length and that's the distance on surface if you will.

Now, to drill deeper, you wanna drill down to 1000 meters? Well, it's gonna cost you twice as much to drill to 1000 meters and you may or may not find something. It's easier to find it laterally because you don't have to drill as deep than it is vertically. So once you found that it does go laterally, then you go deeper. And I think that would be the next stage. If we find out that they'd hit on hole two, which we don't have the results of yet, and that might maybe hit the side of hole one and some of the holes they've already drilled, then I think they would definitely go deeper because there's...I think the suggestion was that as you go deeper, quite often, the grade can go up considerably.

Craig: You mentioned we don't have the results of that yet. I mean, there's a reason why there's kind of a shortage of news this time of year. We're past the earning cycle, that a lot of that happened about four or five weeks ago, but this is a normal type of news pattern, isn't it, Eric, this time of year?

Eric: Well, it's a slow time of year and well, I think there's two reasons. I think the whole COVID thing and the fact that a lot of miners can now raise money, a lot can raise money, therefore there's a lot more drilling and you know, the assay offices just can't keep up with it. Plus if you're gonna release news, I think people would imagine the better time to do it is in September, not in August when everyone's kinda snoozing and summering and things like that. So that would be another reason.

Craig: That's another reason why things are probably gonna get interesting next month. And one last question in that regard, a number of people have written in as of late and worried that the general stock market's gonna crash/correct, whatever you wanna call it. And just wondering what your initial thoughts would be, you know, just off the top of your head as to how the mining shares might perform the next time, if there is a next time that the market...general market pulls back.

Eric: Well, as we know, in '08, the stocks went down very quickly and hard, but came back very quickly and ultimately went, you know, considerably higher and way outperformed anything else. And I would say in today's environment with gold at a record price, with gold at a recent high...as silver at a recent high, with Warren Buffett buying Barrick, with it being obvious that a plethora of advisors are recommending gold and silver, we're not gonna see the selloff that one might have anticipated.

Furthermore, a lot of the stocks in the last month have done nothing while gold hit a new high, while silver went up $18 to $28. I don't think the silver stocks are up a dollar on that move. So there's huge opportunity, I think, in the stocks because everyone's sort of gone to sleep on them here, notwithstanding the fundamentals getting better by the day. So I don't think it's very likely they would drop anything like they did in '08. In fact, they may rally because people realize as happened in the two NASDAQ crash of 2000, the '07, '08 crash, gold stocks are the one asset that tends to go up in that environment.

Craig: We know how the Fed will respond in that case too. I think everybody's learned that now too. So you can begin to anticipate that. One last thing, I know you mentioned your list for Jaguar and Tudor, and we've kinda touched on those. Anything else you'd like to cover before we wrap this up?

Eric: You were gonna have a question about, I think would someone like myself look at the suppliers to the mining industry as an investment opportunity. You were gonna mention that.

Craig: Oh yes, that's right. Yes. So would you?

Eric: I don't look at them. And the reason I don't look at them is you don't have the leverage in profit in a guy doing assays or a guy doing drilling because he can't just double his price overnight whereas the price of silver can double overnight and it's all profit. So you don't quite get the leverage in those that you'd get in the physical products. So I tend not to look at those opportunities. I prefer ones that can...you know, where you can get the 10 or 20 bagger and all based on price more than anything else. So I find that easier.

Craig: There you go. Thank you for reminding me of that because yep, I gotta get some more coffee. I'd forgotten about that question. My friend, it's gonna be an interesting month. No doubt about it. We get a lot of folks back as September begins. Of course, next week brings a Labor Day holiday here in the U.S. which will be a three-day weekend, first weekend of September. Got that big FOMC coming up in September so we've got a lot ahead of us that we're gonna be discussing in the weeks ahead, but for now I think we're about done. Anything else you would like to cover or should we wrap it up?

Eric: Well, it looks like a lot of...I think there can be a lot of clear sailing here. People should watch very carefully what happens to the silver price. I think the silver price is the key thing to watch here. And it's interesting, go back and look at your silver stocks and see what they've done since the price went from $18 to $28 and their profits have obviously doubled. No, they've tripled. The profits have tripled probably going from $18 to $28 because at $18, maybe their costs were $13, they're making 5 bucks at $28. They're making 15 bucks, the profit had tripled, and the stocks have done nothing. Great opportunity.

Craig: Well, and I'll tuck this in too, when you talk about silver going back to 15 to 1 versus gold, that's getting back to more of a physical base pricing scheme, not this derivative, phony baloney futures pricing scheme that we currently have. If that's the case and we're pricing more off physical, you're gonna wanna make sure you have physical metal. Whether you've already got some or you think it's time to start, sprottmoney.com is where you wanna go. On the site you'll find all great deals on physical. You know, we've got the Royal Canadian Mint Maple Leaves, we've got American Silver Eagles. Anything you'd like, you can find at sprottmoney.com.

We'll also store it for you at a very economical cost. It all begins by visiting that website or just simply giving us a call, 888-861-0775. Eric, I'm gonna put you back to work, looking for silver opportunities.

Eric: I'll be on the case. You don't worry. I hope I come up with something for next week.

Craig: That sounds good to me. All right, my friend, have a great weekend.

Eric: All the best to you, Craig.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thanks for listening. We'll talk to you again next Friday.

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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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