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The Opportunity Right Now in Gold and Silver - Monthly Wrap Up

Monthly Wrap Up with Bob Thompson

 

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 After a very busy month of September for the markets, host Craig Hemke sits down with Bob Thompson of Raymond James in Vancouver to break down all the gold and silver news you need to see the opportunities right now for precious metal investors.

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

  • How today is like 1975
  • Why even the Bulls are Bears—and why that’s good for gold
  • Plus: Where are we on the Mining Clock?

Something I’ve been talking about recently is that— it’s kind of disheartening—that in my field, people that look at the big picture don’t really pay attention to what’s going on anymore. All they care about is what the Fed’s going to do. And I think that’s really a sign of a broken system. People don’t care about the economy, how fast it’s moving, employment… whatever the Fed’s going to do, we’re going to react to that. And I think that tells you that the system is broken. The system can’t function properly unless we have massive amounts of accommodation from the Fed.

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

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

Craig: Greetings once again from Sprott Money News at sprottmoney.com. It is September 28th, the end of what has been a very busy month of September in the markets. And it's time for your Monthly Wrap Up, a monthly feature from Sprott Money, where we bring in some of the experts in the industry and get their insights on what has happened and what might be coming. This month, I'm joined by Bob Thompson. Many of you remember Bob from some of the Weekly Wrap Ups that we've done this year. Bob, of course, a senior vice president and portfolio manager at Raymond James in Vancouver. He's a longtime friend of Eric Sprott, and he's also a longtime friend of Sprott Money. So, Bob, thank you so much for spending some time with me.

Bob: Great to be on with you again, Craig, here on the Monthly Wrap.

Craig: It's gonna be a lot of fun. I can't wait to get your opinions on all the things that are going on in the markets. And, you know, it's not just the "Monthly Wrap Up" that Sprott Money puts out. We also put out the "Ask The Expert" segment, which we just recorded with Rick Rule a couple of days ago. Our monthly precious metals projections, with technical analyst Chris Vermeulen, will be due out in another week or so. And you don't want to miss any of this content. The best way to make sure you don't forget about it or overlook it is to sign up for the Sprott Money newsletter. You can go to sprottmoney.com and get that, all of that information, sent directly to your inbox every week, or any time new content is posted. So, again, go to sprottmoney.com and sign up for that newsletter.

All right, Bob. Let's dive in. my friend. There's a lot going on here this month. We've been told again by the Fed that they have these plans to begin to taper their $120 billion a month of debt monetization. Well, we'll see about that. We've also got the ethics of what is clearly insider trading from some of the Fed presidents that has come to light. And we're also, gosh, Bob, as we wrap up the month, we've got the same old Kabuki theater down in here in the U.S. of the debt ceiling drama, and, "Oh, will the debt ceiling be extended?" and all that kind of jazz. What do you make of all this, as September draws to a close and the fourth quarter begins?

Bob: You know, something I've been talking about recently is that it's kind of disheartening that in my field, people that look at the big picture don't really pay attention to what's going on anymore. All they care about is what the Fed's going to do. And I think that's really a sign of a broken system. People don't care about the economy, how fast it's moving, unemployment. It's, "Whatever the Fed's gonna do, we're gonna react to that." And I think that tells you that the system is broken. The system can't function properly unless we have massive amounts of accommodation from the Fed. And, you know, that's really ridiculous, and I think it's causing all kinds of dislocations in the market, and we're seeing it in gold, we're seeing it in stocks. You know, the stocks go down 2% or 3%, and the Fed makes a comment that they're gonna be more accommodative, and then the stocks rally again, right?

So, here we go. We're just continuing on with this. And I think it's important for people in the gold sector to realize that the Fed, their job is to tell us how great things are gonna be in the future. So, if you see what they say versus what they actually do, it's completely opposite a lot of times. So, here we are, again, the Fed is backward-looking, the Fed is saying that they're gonna start tapering. And, of course, what we're gonna see, I think, is that they're tapering into a slowdown, which is exactly what happened. Then they're gonna have to reverse course. And, you know, it's always the case. For now, the market's still paying attention to what the Fed is saying.

Craig: There was a note put out this week or last week by Paul Wong at Sprott Inc., who was noting that once you go down this course, you pretty much don't reverse it. Maybe you could kind of recite that for us.

Bob: A couple of data points there. That's great, yes. You know, the Bank of Japan went to ZIRP, or zero interest rate policy, 20 years ago. The European Central Bank went to zero interest rate policy 10 years ago. The Bank of Japan, in January of 2016, went into negative interest rate policy, and the ECB, in June of 2014, went into negative interest rate policy. And they aren't reversing it at all. Talk about long term. Here we are at the Fed, we're about two years, in the U.S., at zero interest rate policy, and we're all concerned that they're gonna start reversing it. No. History shows that once you go there, you don't go back. And the reason is because you caused so many dislocations, you caused so...the debt burden is so high, that even if you reverse it a little bit, you're going to cause some major dislocation. So, I think that's where we are right now.

We are in kind of the hangover phase, right? They've given us all this stimulation in the last year, year and a half, they're gonna try to pull back on it a bit, it's gonna start to cause a hangover, and, you know, Craig, what's the best way to avoid a hangover?

Craig: Need a little hair of the dog, Bob.

Bob: That's right. Exactly. So, they're going to realize that, and they're going to start to feed us the drug again, feed us more QE, more accommodation, so that we don't feel the hangover. And I think that's, you know, kind of where we are right now. We're in that transition point right now. And during this transition point, the market is wondering, "Oh, no. Are we gonna have another 2013 taper tantrum?" And, you know, I think things are going to be a lot different this time. And that's why gold's getting hit. It's going to happen. We're in a bull market for gold that started about four years ago, and we're correcting in that bull market, and the technicians will look and say we're hitting some of the stop points, and that'll push it down a little bit more, whatever the case is. But this reminds me a lot of 1975, right?

Craig: Mm-hmm.

Bob: Gold dropped a tremendous amount. It rallied way more than it's rallied this time, so it gave back a lot more during the correction. But then, in the last half of the decade, you know, it went up another 600% or 700%. So I think we're in that transition point now. I don't know whether it's today, tomorrow, few months from now. But we'll hit a base, and then I think we'll look in a few years and say, "Wow, what a great opportunity." The bearishness right now is very, very, very high in gold. I've never seen people more bearish. Even the bulls are becoming bears, and I love those times. The bearishness hasn't been this bad since October of 2018, and you know what happened then. We had a big run. And at the beginning of 2016. Those were comparable bearish indicators.

Craig: Couple things come to mind, Bob. It was also October or November of 2018 was the only other time that the, if you break out the Commitment of Traders report on COMEX, that the swap dealers, the banks, were actually net long silver futures. That's the only other time that happened before last week. So there's a parallel to 2018. I'm also thinking about Eric always saying, "You gotta be comfortable partying in the room, you know, by yourself when everybody else is out having fun." And then the last thing is, I just, like I said, I recorded "Ask The Expert" with Rick Rule for Sprott Money just yesterday. And Rick said, you know, "People are just, they don't understand history. Bull markets are not two years long. They're 10 or 11 years long." We're only two years into this, and I go back to the '70s. Gold went from $35 to $200 over four years, then pulled back to $100 and everybody freaked out before it went to $900 in four years. That just goes right to what you were just talking about, Bob.

Bob: And I'm reminded of, since you mentioned Eric there, I wish I could find it again, but I just can't find it. It was his "Markets at a Glance" in March of 2000 that he wrote, and he's screaming in the report saying, "You've got to buy gold stocks. You've got to get out of technology." And, you know, a lot of the same circumstances that we're seeing today, you know, the technology index was at all-time highs and extreme euphoria, that the top five tech stocks represented huge amount of the total market cap of the whole U.S. market. And, you know, from that point, in March of 2000, that Eric wrote that report and started his hedge fund, and went long gold and short tech, the gold stocks subsequently were up 200% over the next couple of years, while the NASDAQ dropped 76%. So, here we are 20 years later, back to the same spot...

Craig: How about that.

Bob: ...and I think that "Markets at a Glance" of March of 2000 that Eric wrote is really going to come into play again.

Craig: So, Bob, some of the questions that came in this week for you dealt with specific companies, and I know we can't get into that. But it has been a tough year for the mining shares, in particular. GDX now breaking down through $31. That doesn't look good. GDXJ, that chart looks pretty rough as well. But I know you've got your own, called proprietary tool that you developed, called the Mining Clock. Where are we? Here we are nine months into 2021, and maybe a full year into this pullback. Where are we on that Mining Clock? Has it moved at all?

Bob: Yeah, that's a great point, because what you said about the shares, sure, a lot of people are disappointed in the shares, especially the juniors, but remember, when you find a big deposit, the stock's gonna go up dramatically in price. As you start to develop or expand the deposit, or do some [inaudible 00:10:08], you know, as you start to basically say, "Okay, we're going to have a mine here," usually the stock drops off price, because the speculators are out. And remember, the companies that...or the money managers that want to buy producing assets are not gonna buy those assets yet, because they're in development. So they're gonna wait.

So, you have this void in the market, and that's the case with a lot of these stocks right here, right now, in the market. So, as they start to produce down the road, you know, obviously the money will start to come in again. But we're in that void right now, and obviously, the sentiment's bad, so it makes it even worse. But managements that put their heads down, and say, "We don't care about the gold price. We're just going to make our company better every month, or every year," you stick with those companies, things will work out fine for you. That's very, very important. I think that kind of gives a broad stroke as far as the sector. Now, as far as the Mining Clock, what I did, actually a few months ago, is I changed the Mining Clock a little bit, and put three different hands on the clock, instead of just one. And that was because Ross Beaty actually said to me, he said, you know, "Gold is different than copper. Gold is different than uranium, whatever the case is, and they're all in little different points in the cycle."

So, what I've done is, the Mining Clock, I've changed it, so, the gold is basically about 6:30, which basically tells us that we've raised some money in the sector, people are going out and exploring now. And this exploration is gonna cause some pretty big finds, and that's happened in the Golden Triangle, and there's been some news coming out there recently, where they're expanding some of the big finds that have happened. And I actually had a sit-down recently with Ken Konkin who, is a famous geologist up in the Golden Triangle, and he couldn't be more excited about some of the things that he sees up there right now. And the companies have money. So there's going to be big discoveries, and that's going to cause some excitement in the sector going forward here.

You know, copper is actually a little bit further back than gold. Gold and silver were first out of the gate. Copper is a little bit further back. There hasn't been as much money raised in that sector, and things will develop as money is raised, and there'll be some big discoveries. And actually, back around 4:00, which is a point of, you know, just after capitulation, which is at 3:00, is the uranium sector. And the uranium sector, you know, it's popped up really, really fast here because of Sprott going and buying on the spot market.

But, as far as the exploration, as far as the development of these companies, it really hasn't evolved yet. So we're still kind of far back. We're behind gold and silver as far as that's concerned. So I think it's important to know where you are in the cycle, and if you're in a bull market or in a bear market. And we're in a bull market for commodities. So, you know, during bull markets, you'll get these big cyclical corrections, where people get negative, but usually that's a great buying opportunity, because things will get better. We're in a bull market for most commodities. Gold and silver are first out of the gate, but the commodities boom will end when all the commodities go into a euphoric rise, and we're still a few years away from that, but if you have the intestinal fortitude to get through this, I think the gains will be pretty good going forward.

Craig: Yeah, that's the hard part. That's for sure. And I did want to ask you about uranium. You know, from your position up there in Vancouver, I know that's something that's on your radar. Obviously, Sprott Money doesn't sell any uranium coins. That would be dangerous business, I suppose. But nonetheless, it's interesting. Just, if anything, I wrote a couple of weeks ago for Sprott Money about, can uranium kind of lead the way or show an example of how silver can move? Because uranium, after Fukushima, was just dead for nine years, just like silver was dead for seven. And it's just now starting to break out. Is that something, you know, that with your clients that you're starting to look at, some uranium equities and the like?

Bob: It is, because the great thing about commodities, all commodities, and this goes for uranium, or copper, or gold and silver, is that, you know, the fix for low prices is low prices. So, in other words, when prices are low and it's not profitable to mine it out of the ground, there's going to be very little capex put into the sector. So what that means is that the recovery is a when question, not an if question, right?

Craig: Mm-hmm.

Bob: So, things are going to recover for uranium, for copper, for gold, for silver, for all the commodities. We just don't know when. But I love those kind of questions, because I'm willing to wait this year, next year, the next year, whatever the case is. The gains could be spectacular. And on the uranium side, that's right, it cost $60 a pound, or companies will not start to put money into the ground to develop their projects or go find some more unless uranium, over a sustained period of time, is $60 a pound. It was about half of that up until recently.

So, I looked at that and I said, "Okay, you know, this is strategic metal. There's all kinds of inventories all over the place in the world, but this is going to work itself off." So, Sprott coming in and starting to buy obviously accelerated the process maybe a year or two. But the key is that companies are gonna have to start to spend, and mine some more uranium. And I think, you know, that's a positive, that the stocks get overcooked. They always do in the short run, and I think that hurt the gold sector, that, the junior mining stocks of it, because, you know, speculators are speculators. And if they're going to speculate in gold stocks, they're going to speculate in uranium stocks.

So, you know, money was being pulled from that sector and going into the uranium sector, so that hurt the gold stocks a little bit more. But, you know, at this particular time I would be certainly willing to take a little money off of the table in some of the uranium ones and buy some of the gold ones again. I just love it when everybody's bearish on something, because if it doesn't hurt, if it's not painful to buy something, then you're probably paying the wrong price.

Craig: Yeah. And Bob, one last thing. I mean, you've been at this for a long time. What do you think of the notion that we're in a period now... Because energy is such an important part of mining, and energy costs are soaring, natural gas is going, like, crazy. We don't use a lot of natural gas, but crude oil, highest it's been in a couple of years. Are those shares kind of reflecting some margin pressure at all? Or if the price of gold just simply turns around, the shares will turn around as well?

Bob: Yeah, I think so. I mean, I don't think they're really reflecting the margin pressure yet. I just think everybody's got one word on their mind, and that's taper, right?

Craig: Yeah.

Bob: And they figure if the Fed's gonna taper, then gold's not the place to be. But again, you know, the Fed's gonna have to pull back on that. Their job is to basically say how things are great, but watch what they actually do. And I think we're gonna find that, you know, people will come back into the sector again. People are extremely under-invested in the sector. And I heard Paul Tudor Jones recently, he's probably one of the best hedge fund managers ever, and he talked about how under-invested people were in the commodity sector. And if nobody's invested in the sector, very few people are, then it really has minimal downside. And you get that asymmetrical return profile, because as people start to come in, even if it reverts to the mean, you know, the stocks go up a lot.

So, you know, I think that answered your question a little bit. The sentiment is so bad right now. Then when you stick taper on top of that and all these other things that start to happen, and we had retail sales come out, they were plus 0.7, and they were expected to be -0.8. So there was a datapoint that everybody jumped on and crushed the gold price down. You know, that was one of them. But, you know, today we saw the manufacturing index went into contraction in the U.S. versus the consensus, which was positive. So I think we're starting to see that rollover right now, and the Fed is going to be tapering into a slowdown, which is exactly what you shouldn't be doing. But it's what's going to happen.

Craig: And, you know, Bob, from a contrarian point of view, as we've been discussing, you know, gold's down $300 while the Fed has monetized about a trillion and a half over the last 12 months. So maybe if the Fed starts to taper, gold will go up, for crying out loud.

Bob: Well, exactly. You know, the key is, you're right, because we know that gold doesn't necessarily respond to how bad things are. Gold responds to the policy response of the Fed to how bad things are. So, we say, "Look at all these negative yielding bonds. There's $15 trillion in the world of negative yielding bonds." Look at the unfunded liabilities and all these sort of things. Well, in the short run, the market doesn't care about that. They care about the policy response that the Fed does to fix those problems. And right now, the policy response, the Fed says, is going in the opposite direction. It's the tapering. But obviously, we have to wait for the next step. And they'll have worded around, and they won't say they're wrong or they won't say they're not doing something they didn't say they were going to do, but they'll word it around and then we'll start to see, "Oh, wait a second. They've completely reversed policy here." Right?

Craig: That's right.

Bob: And that'll be a big, big leg up for gold again. But we're in that transition point right now. And remember that we're totally invested here. We're long-term thinkers in this sector. But the average generalist money manager out there, a hedge fund manager who worries about their quarterly or monthly performance, has zero interest. And if they figure they can short it to make money in the next month, and then go long next month, they will. They don't care about the fundamentals. They just want to make money in the short run, so that's what we're going through right now.

Craig: Great stuff, Bob. Hey, and everybody listening, on your way out, please keep two things in mind. This free content is made available by Sprott Money. So, if you're in the market for physical precious metal or a way to store that metal, make sure you always visit sprottmoney.com, or pick up the phone and give them a call at 888-861-0775. And if anything, throw them a like or a subscribe on whatever channel you like to access this content, because that'll help Sprott Money get the word out. So if you could help us out, we'll keep putting this great content out for you. And this was great content. And again, from Bob Thompson, Senior Vice President and Portfolio Manager at Raymond James in Vancouver. Bob, thanks so much for your time. It's been great visiting with you.

Bob: Thanks again, Craig. And we look forward to next time.

Craig: From all of us at Sprott Money News and sprottmoney.com, thanks for listening.

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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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