“A New Kind of Reality” - Weekly Wrap-Up (August 9, 2019)

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

Craig: Well, hello again from Sprott Money News and sprottmoney.com. It's Friday the 9th of August, 2019. It's been another very exciting week for the precious metals, so it's time for your weekly wrap up. I'm your host Craig Hemke and joining us this morning is Eric Sprott himself. Eric, good morning.

Eric: Good morning, Craig. And who would've thunk it? $1,500 on gold, 2,000 in Canadian dollars, like record high. We've got a lot of interesting stuff going on here, so it should be fun.

Craig: We sure do, my friend. And I would encourage everyone to stop by the Sprott Money site, just sprottmoney.com. Check out the deals page. You will always find the best prices for physical precious metal. You can store it with us as well. Just come to sprottmoney.com or call us at 888-861-0775. And one reminder, every month we hold what we call our ask the experts series. And that's a recorded podcast that, with various experts in the precious metals industry.

This month is someone new that I encourage folks to make sure you listen to. Maybe submit some questions if you want. It's a guy by the name of David Rosenberg. If you follow him on Twitter, you might've seen his work on Zero Hedge. He's the chief economist and strategist at Gluskin Sheff and Associates in Toronto and a very wise man. I'm really looking forward to getting a chance to visit with him and we'll do that next week. So if you have any questions for him, send it to submissions@sprottmoney.com or you can tweet him, tweet your questions at us at Sprott Money as well.

All right Eric, let's get rolling. It's been a fun week. All of this currency devaluation stuff, currency war stuff, Trump tweeting about trying to weaken the dollar, the Chinese pegging the Yuan above seven to one for the first time in about a decade. Gold soaring now by more than $50 this week. Silver up more than 70 cents. What are your comments here on this fine Friday?

Eric: Well, before I get into all the exciting stuff, you kind of surprised me with David Rosenberg, who I have the greatest admiration for as an economist, okay? He's a great guy. He lives in Toronto. We've had many conversations together and that will be a very good listen. He's a very realistic guy. I know he's a bear these days, which I think is quite appropriate, so I would certainly recommend that everyone listen to that podcast.

Now, in terms of gold and silver, very, very exciting week. The whole notion of the currency war with the three banks, central banks reducing rates during the week, India, Thailand, and New Zealand, and pretty good cuts to 2 of them were 50, I think 1 was 35. And as you say, Trump's suggesting he'd like to get a weaker currency. I mean, it's all just leading into gold and silver and the Ray Dalio paradigm shift. We have a paradigm shift going on here, folks. This is a new kind of reality. It's like all of a sudden, you know, having quantitative easing, which we never had before. It's a currency war which we've never really had it quite like that before. But we're in it now and it really says, in order to save yourself, you have to be in gold and silver. And for example, we've had gold and silver in Canadian dollars up 25%, 30% in the Russian rubles. We've got Brazil is up 25, Mexico's up 25, Australia is up something like 30. Actually even in the U.S. dollar, we're now at 25% year over year. I mean, think of the profits.

Well, one, wouldn't it be nice to have owned gold and made 25% in 12 months, okay? That's way ahead of the stock market, it's ahead of everything. And it's not just a new occurrence. I mean, gold bottomed in early '16. So we've had a good run here. We've probably had, what is that run? We've run at like 40% now since '16. We're in a bull market and we got the momentum on our side here.

And I keep thinking about, let's take the change in the U.S. dollar price from let's say $1,200 to $1,500, $300 change. What do you think the average gold mining company has done to their earnings? Most guys don't make $300. Now they're just handed a $300 bill and everything else that they weren't getting before. I mean, at a minimum, their earnings have doubled, doubled. And yet the UV index has gone from what, 160 to 220, something like that. So it's up 40% but the earnings have doubled and we're rolling. I mean, who's to say that it won't be 1,750 in another 6 months with what's going on today? So that could be another doubling of earnings. So the opportunities in my mind are immense here.

Craig: Yeah. Eric, I'm going to put kind of three points together and have you run with it. I mean, one, the fact that gold is at all-time highs in so many other currencies, British pounds, Canadian dollars, Aussie dollars. I mean, you just go around the planet. It's an all-time highs. It'll soon be at all-time highs in dollar terms then as well you would think. And you combine that with now $15 trillion in negative-yielding debt around the world. I mean, that was always the argument against gold, right? Is that it has a negative yield. You got to pay to store it and it doesn't pay a dividend. Well, you eliminate that. And then lastly, what's the global allocation to gold in all its forms? Maybe 1.5 of 1%? Put all those three together for us.

Eric: Oh yeah, I know. It's just amazing to think that, well, for example, even people buying gold and silver today in the fake markets and fake gold, silver markets which would be SLV and the GLD and things like that in my mind and the Comex for sure. I mean you see the money just pouring into these things and you have a short position in silver, for example, of 1.2 billion ounces here in the Comex. The Shanghai short position is around 700 million ounces short on the Shanghai Futures Exchange. There isn't that amount of silver around, okay? All these fake markets are keeping it suppressed but they couldn't possibly deliver. And imagine as you say, people really wanted to come in and buy these things. You got such a short position already. What's going to happen here? When somebody says silver could go to $50 or $100, you know, I get it. I get what can happen. It's ridiculous the suppression that's gone on here.

And of course, now we're at 15 trillion of the negative-yielding debt, which you referred to, and every central bank says, well, we want to reduce interest rates. Well, what are we going to have 30 trillion of negative-yielding debt in 12 months from now? What's that going to do to the demand for gold that now has gone up almost 25% in every currency, 25. What do you get at the bank? Oh, you lose one. Oh, I could make 25 or lose 1. Let me think about that for a second. How long you have to think about it?

Craig: Exactly. And it's not just the individual so much, it's like you and I and everybody listening that figures that out. It's the global pension fund managers and the global institutional and hedge fund managers. And if they start reallocating to gold, there's only so many mining stocks you can buy. There's only gold in so many forms that you can buy. And it overwhelms everything if it really heads in that direction.

Eric: Right, it's absolutely impossible. You know, Ray Dalio said you should have 10% of gold and silver. Oh, come on. We're at 1.5 of 1% even if you are at 3/4 of 1%. Now you got to buy 16 times more gold and silver than you have already. Well, what do you think's going to happen here folks? There's only one way it can happen and that's the prices have to go up to make the percentage of ownership bigger because you can't buy it. It doesn't exist. We're already under supplied and everything because we have these big short positions. We've oversold it ahead of time. So how do you get in?

Like it's just going to be chaos. And that's what's going to happen. The other thing and I've said this many times I think here, thank God for computers because the computer keeps telling the portfolio manager, oh by the way, the number one performing group is precious metals. Oh, by the way, the number one performing groups is precious metals. And what do you have in it? Nothing. Well, what's your job? What is your job defined as? Being where you should be. And they're going to come around to it. That's just the way it happens.

Craig: Well, and you've told us now for months, which I thought was extremely insightful, that it's always the big companies, the high leverage producers that are making $100 an ounce at $1,300 and now make $200 an ounce and double their earnings at $1,400. Triple their earnings at $1,500. That's where they, that's where you see the action. You've been absolutely right.

Eric: Sure. I mean, you see some of these stocks that were out of favor, Eldorado, Detour, they're just rocking here. And I can tell you from my own experience, I'm out there now buying companies with ore bodies where the ore body is going to become economic at $1,600 and $1,700. And of course, they were just being thrown into the garbage a month and two months ago. And now all of a sudden, people can. They can see, okay, what happens when the price, when you do the new feasibility study and the price is 1,500, not 1,200. Oh my God, now it's got a return on investment of 33%. That seems like a good investment. Let's go build that mine. So those are huge and those stocks go crazy. I mentioned back in 2000 when Seabridge went from $1 to $35 when they ended up buying ore bodies that would work at $400 and then the price goes to $1,900. And it went up by 35 times. And there's other examples of things that have even moved more than that. So there's huge opportunity here.

Craig: Eric, we've got a list again from some listener questions that we need to get to, but before we do, anything else on your radar this week you want to make sure that we discuss?

Eric: Just the economy continues to suck. We had good tonnage that went into the ETS. They are 62 tons went into the gold ETS in July. I would imagine it'll be even bigger. I mean, look at the momentum we had this week. We've had like that move in the gold price, whatever day it was. Was it Tuesday?

Craig: Yeah.

Eric: Oh my God, I've never...I haven't witnessed many of those. It's the world, the world is focused on gold. The world, not just the United States, okay? I think it's a world thing more than it's a U.S. thing and the U.S. investors are being sorta hauled into it here by what's going on in the rest of the world because the rest of the world sees record prices. So why wouldn't I want to own that [inaudible 00:11:29]? Think of the analogy of losing 1 and making 25, okay?

And what if you find out at the end of this year, instead of losing one, you could've made 50? And if you are in the gold stocks, you'll probably make 100%. When do you make the 100%? With gold stocks out of 160% in the first 7 months of 2016, I'm not going to be surprised to see the same sort of thing happen here for these 7 months from let's say June 1st to December 1st. It could be crazy what they go up by.

Craig: Yeah. Yeah. And I think it's smart to emphasize that this is very likely, you know, we're not at the end of the road here. I mean, this is the proverbial train leaving the station kind of thing because the trade war, the global economy slowing, the central banks cutting interest rates going even lower, all of these are the fundamentals that are driving prices in the first place. And they're only going to continue, it would seem.

Eric: To me, it feels like Deja Vu all over again, 2001, 2002. You know, when nobody cared about gold and silver stocks. And you had...it was a killing field out there in terms of buying things cheap. And they all went up like huge multiples of hundreds and hundreds and hundreds of percents. And that's what can happen here. I mean, who's to say? Why do we stop gold at whatever price you want to stop it at 2,000, 1,900? Let's just say it doesn't go to $3,000 or $4,000 or $5,000 with the idiocy that's going on here? It's clearly very possible.

Craig: Well, all right, my friend. Again, we try to answer as many questions. We had a whole bunch of them every week and in our limited time, we try to answer as many as we can because we want to respect everybody that took the time to send us one. But we get a lot of questions on a great number of individual mining shares. And Eric and I kind of go through the list every week before we get started and we look at every single one and I ask Eric about every single one. But if, you know, I know Eric, if you don't have an informed opinion on something, I know it's not something we want to get into.

So sometimes, you know, we hear about stocks like, let's see, Canasil Resources or Equinox Gold, things like that got sent in this week. If we don't ask, you know, if I don't ask Eric specifically about your company, just assume that it's something that Eric didn't have an informed opinion on. But I do want to start, Eric with a couple that I think you do know something about maybe Sukamon [SP], you've talked about that before, and De Grey. Do you have any comments on that?

Eric: Yeah. Okay. Okay. Well, it's interesting. Let's go with Sukamon. I mean, they've stepped out the drilling here. They've had some other good intersections. It's a slowly evolving play that we haven't quite got the continuity that we're all looking for. But then again, we don't have much market cap, so it's not going to take much to move it here. And I think they're on to something in Newfoundland. So it could get a lot better because they seem to be understanding the geology but of course we always got to wait for the drill bit to prove it out. In terms of De Grey, Kirkland Lake had a position in De Grey to play the Pilbara-slash-other normal gold play they have in Australia, which is like a sheer structured instead of a nuggety type Pilbara type thing.

And they've just did a deal with Novo where they did a joint venture on some of their edge, what's called edge in a properties. And by the way, Novo came out with, well, Quentin Henning's been interviewed a couple of times recently and he's talking about this edge in a property that they have in the Pilbara and the fact that the top 2-meters seem to be a gold-bearing and we're going to have some results shortly on what sort of gold he's coming up with. And if they ever come up with anything like above a gram a ton or not even a gram, that guy could come up with a quarter of a gram a ton and it would be very economically just taking the top 2 meters off.

And of course, he's got thousands of square kilometers of this stuff. So I mean this whole Pilbara thing could come back on the playing field here. And of course because De Grey has a joint venture with them on their edge in a properties that would be very enticing as well. So the whole, the Pilbara thing could come back on the playing field here if the edge in a worked because it's just right on surface, easy to mine. It's just a shovel and truck thing so it could be quite exciting.

Craig: How about some of the others that I know you follow closely, Walbridge, Chesapeake, some of the others?

Eric: Sure. Well, first of all, Walbridge had three drill holes that they released on Wednesday, I guess it was. I haven't had the opportunity to speaking to the geologists there yet because they have also a lot of holes which they show on the figures that they present as being very laden with visible gold and gold intersections over long, long widths. So the only long width we had was a hundred, I think it was 91 meters of .98 gold, which is perfectly suitable for underground or open-pit mining, either one. But they show long sections like things that are like 500 meters long that have these gold occurrences all along the way. So I would say it's quite encouraging. I'm looking forward to talking, I'll be talking to them today. Unfortunately, they were tied up yesterday down in New York and they didn't have time to chat about it, but I will probably right after this call make contact with them, but I think it looks good.

I got involved in a company called Brixton, which I bought 25% of, they're also up in the golden triangle. They had a huge intersection. I think it was like 553 meters of 1.98 gold equivalent and half of it was silver. And the silver part hugely intrigued me, hugely intrigued me because I think silver is going to just knock the ball out of the park here. So I liked that. People should take a look at it. It's a speculation because it's again, a drilling play and you never know with drilling plays, but it sure looks like they've got the goods there, okay? I mean, they had other holes previously. It showed good silver intersections.

So it has all the earmarks of a big porphyry system. Typically the silvers at the top, then you get to the gold, then you get to the copper and it's kind of shaping up that way. So we're going to stand by in that one. Plus they got their Atlan properties also in the Golden Triangle that they'll be drilling, which has had some stunning former historical gold results. So we'll see how that goes.

Chesapeake Gold. The reason I bought Chesapeake Gold was I saw Chesapeake on a table of people who leveraged the silver. It was, let's say, halfway down the list. As I'm looking at this thing, Chesapeake's levered to silver, like number 10, leverage is silver. And of course I knew, hey, they got 18 million ounces of gold. Are you kidding me? What's the silver got to do with it? And so they got apparently, you know, a resource of 500 million ounces of silver and 18 million ounces of gold. And it's in Mexico called

And, with these prices at $1,500, I mean, I don't really know what the return on investment would be but I can guarantee it's going up real fast. Now it's going to cost somewhere between two and four billion depending on the mining plan. But I suspect that with these prices that's a sort of thing with where the ore body comes back onto the table of being economic against and all of a sudden instead of having a 100 million market cap, maybe it'll go to a billion or two. So that's something I got involved with recently.

Craig: Eric, it's getting late and you're being very generous with your time. And I know that this is very insightful for everybody listening, but I want to be respectful of your time. So I know you've got some stuff you've got to do. I've got just a one last question for you that somebody sent in. They say they listen to us every week and this is something that is bothered them for quite some time. And that's if you go to that website, the U.S Debt Clock, which is like usdebtclock.org or something like that, and a lot of people have seen it. It's like a spreadsheet looking thing with all the numbers flashing and changing almost every second. And it says there, the gold to dollar ratio is $5,945 an ounce. And it shows silver at 724. So does that not mean that maybe the silver gold ratio or gold silver ratio should be 8 to 1 instead of 95 to 1? Just your thoughts and what all that means.

Eric: Sure. Well, first of all, two things, well, one, the debt clock tells you what gold should be worth, okay? And second, knowing that fiat currencies are valueless, will be valueless. That's almost guaranteed, okay, because the U.S. in my mind if you have had to put on your balance sheet, your present day obligations, you're broke. We know that. Everybody knows that. That's a given. Now, turning to gold and silver, one of the reasons I get excited about is that when you look at that gold-silver ratio, I look at, for example, the amount of people that's going into putting money into silver versus gold based on my proxies of the GLD, the gold ETF, and the SLV, it's like 6 to 1. So there's $6 going into gold, $1 going into silver. Well, why would the price be 90 to 1? What's with the 90 to 1? In the Earth's crust, I think it's 12 to 1. Typically when it used to be a currency, it was 15 to 1. What's with the 90 to 1? It's just absolutely preposterous that it would be there.

I got to believe that it's, you know, the commercials are able to rig this market up because it's so small. Imagine that you could buy all the, probably all the silver that's available in inventory to be bought might cost you all of $15 billion. What's the debt cock going to go up by today? Is that going to go up by 15 billion today? What's the world's debt clock going to go up by today? Like what's $15 billion? Nothing. And then you'll see this money's pouring into the the silver ETS and the Comex, which is a fake market but it's all paper. But you can see that the interest is there. So why is the price not reacting? And I was reading some great commentary this week saying, you look at the volume of trading and silver and gold, these things, gold could go up by $500 a day based on the kind of volume we have going into the various gold instruments, but it's being held back, okay? And when the dam breaks, [inaudible 00:22:24]. It should be some serious action here.

Craig: Absolutely. I hear you. We're all waiting for that day, but in the meantime, it sure has been a lot of fun these last couple of weeks and I would sure think it would continue. And I would encourage everybody that enjoys listening to these discussions every week to visit sprottmoney.com. You can actually get the weekly wrap up and other articles that are posted during the week from industry experts sent directly to your inbox. You just simply sign up for our newsletter at sprottmoney.com and you'll even get a chance to win a Sprott Gold Wafer. Wafer, I like it. Anyway, sprottmoney.com, check us out. That's where you'll find all the deals as well. Again, call us 888-861-0775. Eric, thank you so much for all of this information this week. It's been very beneficial and I hope you have a great weekend.

Eric: Sure. Well, Craig, look, speaking of information and being helpful, people should also look at your website because the cost of your subscription is like a measly 12 bucks a month and the value you get for is incredible. So I would encourage them to go to your website, is it tfmetals.com or...

Craig: TF Metals Report.

Eric: TF Metals Report. There you go. They should look at that.

Craig: That's very kind of you. I appreciate that.

Eric: You've been helpful and I hope we've been helpful to everybody too. It's been an exciting time and, again, I will not going to be with you next week because I'm going to be fishing up in the Canadian Arctic, way north of the Arctic in the Arctic island. So that should be fun. But let's hope that we get a week next week like we had this week. It was pretty stunning.

Craig: Well, I appreciate you mentioning that, Eric. And yeah, have a great trip and it'll be interesting to see by the time we speak again on the 23rd where everything is.

Eric: Looking forward to it.

Craig: All right. Have a great weekend and from all of us here at Sprott Money News and sprottmoney.com, thank you for listening and we'll have something for you again next Friday.