Why Next Year Promises Big Things for Gold and Silver - Weekly Wrap Up (Sep 4, 2020)

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

Craig: Happy Friday from Sprott Money News at sprottmoney.com. It's Friday, September the 4th, 2020 and it's time for your weekly wrap up. I'm your host, Craig Hemke. And joining us again this Friday morning is Eric Sprott himself. Eric, happy Friday.

Eric: Hey, Craig. Great to be here. We're gonna have a tough day today it looks like, with the jobs report out, and then we got a three-day holiday there, so we gotta bide our time till our day cometh, but it cometh, believe me.

Craig: Yeah, yeah. You know, just another one of these times where we take two steps forward and one step back. It's always seemed the way it works, and we just kind of be patient, I suppose. And I want to thank everybody for being patient with sprottmoney.com. You recall a couple of weeks ago, we rolled out our latest and greatest new version of our website, much easier to navigate, much easier to use, so we encourage everybody to check it out. Just go sprottmoney.com. The whole website is upgraded, looks great, and we've got a great selection of gold and silver for sale. You can purchase online so much faster and easier now. Plus, we've got one of the best precious metal storage program around, with really great rates for all your storage needs. Again, find it all at sprottmoney.com or call us at 888-861-0775.

Eric, again, kind of a frustrating, dull week. No fun for us, but that's all part of the process. And we had the U.S. employment report this morning, which is always amazing when the ADP report comes out two days ago with 400,000 jobs, but then the government report comes out with 1,400,000 jobs. I'm sure you've got some thoughts on all this?

Eric: Well, as I've expressed almost too many times, I tend not to believe the government reports that much. And it's sort of surprising when, let's say we accept it as a bonafide number. The fact is, you've had to have the Fed sit there and buy all the bonds and the government run a huge deficit, and we squeezed out some jobs, and what happens when those things have to stop someday? What's gonna happen then? And that's by far the biggest question, because it determines the future of where we're going, not what's gonna happen on Friday today. So we'll stand by on that one.

Craig: You know, I thought it was interesting. I know you always focus on average hourly earnings component. You know, the Fed has come out and said they're gonna be happy to try to spark as much inflation as they can. The average hourly earnings were up 0.4%.

Eric: Yeah. Again, even those numbers, you know, when they were sending out those checks to people for $600, all of a sudden, the personal income exploded. It's just, it's the way you work with numbers here. Do I think that average hourly earnings are going up? No, I'm not thinking that. You look at where there's weakness, I mean, there's so many industries that are going to be announcing layoffs here, whether it's the airline business, the sports entertainment business, the entertainment business, I mean, the restaurant business. There's so many of them that are not gonna be working anywhere near capacity. I can't possibly imagine that wages are going up here. But government handouts are going up, which ends up in that number, and I think that's why you have that kind of an increase.

Craig: Yeah. You know, we're definitely trending, if we're not already at modern monetary theory by any other name, it seems like that's the hill we've crossed here. What else have you seen this week that's on your mind, my friend?

Eric: Okay. Well, first of all, of course, we had the really tough day in the stock market yesterday, when the NASDAQ was down about 5%, and it looks like it's still a little under pressure here today. I found it so ironic that every time the market goes down, some Fed governor comes out and promises something, including yesterday afternoon. Evans from the Chicago Fed came out and said, "Well, you know, we're gonna have more QE coming up here," and of course, they always expect some positive reaction in the market. It didn't really react much, but you could just see the whole play here.

And then there was a great article written by Alasdair Macleod that basically said, you know, there's been so much money printing, there's so much deficit financing that it's gonna end up playing out sooner or later in the bond market, and a collapse of the government finances and the banking system. And I tend to believe that, that there's great, huge fiscal issues here that haven't been resolved. And yes, we all had this stock market that seemed to be dancing every day until yesterday, and it's gonna be interesting to see if we get, end up with a bit of a sobriety test here in what is gonna happen in the market, and how will people really view the economic numbers going forward, because now the hard work begins, okay? Yeah, you come out of that ridiculous bottom that we had, but you can see there's so many places where it looks like it's leveling off. It's not going down. So, we'll have to stand by on where it all plays out economically going forward here.

Craig: And as you've looked at the metals markets this week, I know there's been some interesting news that has caught your eye.

Eric: Yeah, well, first of all, the deliveries for silver were around 50 million. Of course, they change every day, but it's a reasonable number. We might have been hoping for something a little higher, but it's still, when you think that there's approximately 70 million ounces mined in a month, when the COMEX has to deliver 50, and that's just the COMEX, who knows what's going on in the LBMA, the Shanghai, you know, various exchanges in the world? It's a solid number.

I found it interesting that, I saw an unofficial number for Indian imports of 60 tons of gold in the month of August. Now, that's a big, big number. And I always find it interesting, whenever I read anything about India, they always say how demand is lackluster. Without fail. Every time I look up India and gold, they say demand is lackluster, until the number comes out, of course, right? Then you find that it's booming. And furthermore, there was a report out of India that the central bank was considering going from 6.5% weighting in gold to 10% weighting in gold, which would cause them to have to buy about 9 million ounces of gold, which is 10% of the world's supply on a yearly basis. So, that was interesting.

I read a very interesting article by platinum and palladium shortages on the COMEX. There's very little supply there. This could be important, because it could lead into the appreciation that both gold and silver are very tight as well. So, I don't tend to be an intimate follower of platinum and palladium, but I do know that, you know, palladium's had a huge run here, which a fellow named David Jensen has detailed explicitly, that there's a fiscal shortage, physical shortage, I should say. And now, it looks like there might be one upcoming in platinum as well. So that should be very interesting.

Craig: And Eric, what else have you seen? I saw your friend Chris Vermeulen had some interesting observations this week?

Eric: Yeah, no, that was a bit of a stunner. I think it came out on Wednesday. And I'll just read the four sentences that have some meaning to our listeners. And this is Chris Vermeulen with Technical Traders. It's a very good service. He says, "A phase two rally in metals is just getting ready to start. Phase two rallies are very explosive, and tend to enter parabolic trends. Gold could rally, wait for it now, 250% to 350% over the next several years. Silver could rally 550% to 750% over the next several years."

Now, a lot of people think, "Well, that just is impossible." But then again, those numbers are derived from other bull markets in the metals, where those kind of increases have taken place, so it's entirely possible. And, you know, I've spent a lot of time talking about silver going back to the 15 to 1 ratio, which I believe it would, and therefore $2,000 gold, you go up to $166 silver, which would imply about a 600% rally in the price of silver. So from a fundamental analysis perspective, from this technical analysis perspective, those things are all well in line with what should happen here.

And one of the interesting things, you know, we can all say, "Well, it's just ridiculous to even think that." It isn't ridiculous to think that, because you're not paying for it. You don't have to pay for this, okay? This is just something that might happen. And so, for example, silver year to date is up 54%. The silver equities are up 35%. Typically, typically, if you had a 50% move in a price, you'd probably get a 150% move in the underlying stock, because it's just profit here. So, not only are you not paying for this further potential in silver, you didn't even have to pay for what's happened already this year. The stocks are way underperforming where they should be trading with the change in the silver price already.

So, I think that people have to realize that, you know, I mean, we could be talking about stocks that go up hundreds of times. Hundreds. And you don't have to pay for it. Imagine, okay, let's look at your bond portfolio and a stock that could go up 100%. You know how many years? It takes you 150 years at 0.66 to make what you could make in a gold stock that went up 100% in a year. And, for example, the silver stocks are already probably 100% below where they should be trading. And you don't have to pay for this. Why do you own bonds that are yielding 0.66 when you can own a silver stock that could go by a hundred, if not thousands of percents? That would be the argument that I think we should put in front of people.

Craig: So, why do you think that is, Eric? I mean, is it just still a lack of institutional participation? Is it people were burned in '11, and again in '16, and so they're a little skittish to believe that these prices can hang in there and thus that the earnings will hang in there? I mean, what? Why is it that the silver shares are underperforming?

Eric: Well, it's probably two reasons. One, it happened very, very fast. We went from $18 to $28 in about four weeks. You know, and strangely enough, I think it was actually in 15 trading days, and I think eight of those trading days, the price of silver was down. So you get this very jagged movement in the price. So, you know yourself that very often, we watch the gold price and sure enough, right before 9:30 in the morning, the price of gold's going down all the time, and the price of silver is going down, which takes the steam out of people wanting to get into the market and own those shares. And then sure enough, after the market opened, it tends to go back up again. But as we're all thinking about what we're gonna do that day, the message we're getting from the metal prices is, "Oh, my, God, they're under pressure," as they are, for example, today. And as they were yesterday.

Craig: Yeah. And day before that.

Eric: So, you know, and it happens so often, and I think it's because the people who are short don't want this thing, the tsunami, to gain strength here, even though all the evidence suggests it should gain strength.

Craig: Yeah. You mentioned relating that to the PSLV as well.

Eric: Oh, yeah, no. Yeah, I gather that a lot of people... When the PSLV filed to be able to sell at the market $1.5 billion on the New York Stock Exchange, a lot of people thought, well, they're gonna go out and buy a billion and a half dollars worth of silver. Well, that's not the case. This is just something where they can sell these shares on the market, on an approved sale, to direct money into the fund, for sure. And I can't even tell you the progress of how much money they've raised that way, but it gives them the capacity to add 1.5 billion. That could happen over six months, it could happen over six years, depending on the interest of people in the PSLV.

Craig: It'd be fun to see that happen, no doubt about it. I want to thank everybody for writing in this week. We had almost 100 questions. Eric, what are you gonna be doing the rest of the day? Should we go through... We don't have time to go through 100 questions, but I want to thank everybody for sending them in. I do look them over, and we try to cull the list down to some that Eric actually knows something about, because, you know, we get a lot of names. We can't know all of them. Eric, I've got a few on my list. I know you've got a few. Anything else on your mind before we get to those?

Eric: Sure. Well, nothing in particular regarding, sort of, the overall economics and/or trading in the metals, but I do have some names that I want to talk about, and one is, only because there's been some news come out. So, one is Wallbridge, where they said they've done their analysis of silver, of gold recoveries, and the recoveries were as high as 99%. That was a very good report. Sometimes you, with an ore body, it is hard to extract the gold from the ore, but in the case of the Fenelon ore, it obviously extracts very easily. I know there were some questions on Vizsla. That's a share, shares that I own. They did about a kilometer step out, and hit a vein again. So the property looks like it's hanging in there pretty well, and as they do more and more drilling, we'll exactly see how big it's gonna get.

I would direct people to two interviews. One is by the group at Follow the Money, and that's on YouTube. It's well worth looking at. And I might even add, I mean, I find it very exciting that when I got involved, we're trying to get Jaguar to survive. Now, here we are, we've had five quarters when production's gone up, and it looks like we're gonna put on our exploration hat here. And in Vern's view, we have very strong possibilities of finding significant ore in Brazil, so that's really something to look forward to.

SilverCrest, Chris Ritchie was interviewed on Korelin Economics, and was discussing a new property that they've acquired, and of course, we're all kind of hoping that it would be like Las Chispas, which they have already, which is turning into a great high-grade silver and gold ore body. So that's another interview that's well worth watching. And I find it interesting that this is the one way people can commute to us is through these interviews. And that's why it's very helpful to go to some of these websites like a ceo.ca, where typically, these things get posted on the website, and you get to keep up on the company, so I find it very helpful.

Craig: Mm-hmm. You know, Eric, and we're moving through kind of this earnings cycle for the shares. The last quarter, the average selling price for a producing gold company was about $1,710 to $1,720, I think, is what most of the companies used. Kirkland Lake was around there. And now here we are, we're two months into the third quarter. I don't even know what the average gold price is, do you? I mean, it's gotta be somewhere in the 19s?

Eric: Oh, wow, it's gotta be in the 1950s, you'd think, because we got up to, what, $2,060 there for a little while?

Craig: Yeah.

Eric: So it's gonna be well into the 1900s. In other words, we'll be up about $230 an ounce. And imagine in the case of Kirkland, let's just use, I think they could produce a billion and a half ounces. I mean, that's, what are we talking, $345 million extra revenue. That's about... How many shares we got outstanding here? I think it's about an extra, like, a buck and a half of revenue, that, for the most part, is pre-tax earnings, so, yeah.

Craig: Crazy. Yeah. And you see these shares going down.

Eric: That would be... Well, of course, we've had...the price of gold has gone down from $2,050 to $1,940 here, so we need to get back on the trend here of things going up and reaching some of these near-term targets, like $2200, $2300, that they'll all come back immediately. And of course, silver could be very explosive here. I'm kind of hoping we'll see $35 in the month of September. And if that happens, I mean, all these stocks will turn right around again. So, you know, these are the things you don't want to be selling. You gotta tough it out. It happens all the time, because you have forces working against you all the time, and that would be the guys who are short these things, who are taking it in the chops pretty hard here, want to slow down the momentum. But I think the momentum is well entrained here, so people have to be patient and hold on to get their full benefit of what's transpiring here.

Craig: Yeah. All right. Well, we have a three-day weekend here in the U.S. We're gonna, kind of our unofficial end of summer down here, with our Labor Day holiday on Monday, and so the U.S. markets will be closed Monday, and then we are back to kind of all hands on deck come Tuesday, normal week, whatever normal is, normal week, next week, and then we get the September FOMC coming up the week after that, and that promises to be consequential, as the Fed people like to say. In the meantime...

Eric: Well, they've already promised more QE, so, you know, QE and gold price going up are rather synonymous here, so, everything, we have all the wind in our sails other than the temporary action in the markets here, which, as you know, on any one or two-day basis, these prices can go all over the place based on people who are in the market not for profit.

Craig: Right. And, you know, and what I've been telling people on my site, too, Eric, I kind of feel like in an environment like this, I just need to Rip Van Winkle it, you know? Just close my eyes, take about a year-long nap, and then come back and look again.

Eric: Well, it would have worked well in the last year, so, maybe should do that again.

Craig: Maybe we should. You know, I'm kind of tired anyway. That's not a, I could use a year-long nap. All right. Well, as we wrap up, I want to remind everybody, in a bull market, and obviously metal is scarce, we keep talking about that, and the premiums are high, because it's hard to come by, and at the wholesale level as well.

Look, you've just got to own physical gold and silver, and you've gotta buy it from someplace, if you don't want to hold it yourself, you gotta store it someplace, and sprottmoney.com is your first choice. It's your answer. Please go there. We've got all kinds of American Eagles and Canadian Maples for you to take a look at. We've got bars as well. And again, all of it, very competitively priced. Just visit us at sprottmoney.com. Eric, I hope you enjoy what is basically a three-day weekend as well. And then I look forward to talking to you next Friday.

Eric: I'll look forward to it as well. Hopefully, we'll have a better week next week than looks like we're gonna have this week.

Craig: Well, the bar was set pretty low. So, hopefully will, you're right. All right. And anyway, thank you, Eric. And you have a great weekend, and everybody out there listening have a great weekend, and we will talk to you next Friday.