A Sideways, Low-Volume, Tight Range Week: Is Gold About to Break Out? - Weekly Wrap-Up (December 20, 2019)

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

Craig: Happy holidays from Sprott Money News and sprottmoney.com. It's Friday, December the 20th, 2019 and this is your "Weekly Wrap-up." I'm your host Craig Hemke. And joining us is Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig. Good to be back with you so soon after our "Ask The Expert" interviews this week, so. But lots of things going on, should be fun.

Craig: We certainly have a lot to talk about and yeah, you know what? Let's inform everybody of that right now. As promised over the last couple of weeks, Eric spent some time this week with me recording what we call "Ask The Expert" which is a regular monthly segment. For example, last month we had Brent Cook, the month before that we had Nomi Prins and all of these interviews can be found at thesprottmoney.com website. You click on the navigation bar, you find the tab that says Insights, you scroll down to Ask The Expert, and there you go. So the first installment, there were two of them, we had so many names to cover. The first one that mainly dealt with gold and gold exploration companies will be posted later on today at sprottmoney.com. So please check it out. Boy, we had quite a link to list, didn't we, Eric?

Eric: We sure did. You were testing me all the way.

Craig: That's right. And we again, just like we do here in this format every week, we try to get to as many of them as we could. So again, when you have some time, please check it out. Eric, thank you for spending some time again this morning to talk about things that are cooking in the metals this week. Metals are up a little bit as we speak. It's been kind of a sideways low volume, tight range wait but still looking at green candles. Gold is up about $6 on the week and silver's up 21 cents. How are you feeling?

Eric: How I feel is constant manipulation, that's exactly how I feel. I've seen this thing, this price of gold go to 1480 [SP] so many times this week and in previous weeks. And it always ends up rolling right back down again, it's almost like somebody's fixated on making sure...I think the targeted get it to close below 1475 [SP] either for year-end or options expiring, one or the other because they're just leaning on it. And it's as frustrating as can be, although I'm happy to see it's trading a little bit about 1480, like 20 or 30 cents but that's no big deal and the day is not over. So and of course the other reason for frustrations when you look at the open interest, which on gold is now up to 730,000 contracts and I think that's a record high by the way.

Craig: Pretty close.
Eric: And they're short like $100 billion of gold and they had to short $2 billion yesterday, approximately just under $2 billion yesterday, just to keep it kind of contained here. And it really makes you wonder, you know, who's going to win this battle here because we're at a record high. And quite frankly, gold looks like it's about to break out here, like it breaks out right here. So out of the approximate, you know, four or five months downtrend here. So there's forces at work, although and I should mention that I see that India just imposed restrictions on gold imports, okay. Now you and I, if you just read the press, you'd have the feeling that India could care less about gold. And all of a sudden, now that the gold price is about to break out, they're restricting supplies because it's all of a sudden affecting their balance of payments or something. I've always debated that analogy because when a country has gold, it's not a sign of weakness, my friend, it's a sign of strength. And then the idiot commerce minister comes along and he's urging the guys in the jewelry business to get people to not own gold. He called gold an unproductive asset that gives no return and doesn't help the economy. And I might say to that commerce minister, well, why don't you go ask the guy in India who owns the gold versus your stinking rupee and ask him whether it gives no return, Mr. commerce secretary. I mean, just...you can tell it infuriates me, right? Well, it does. Anyway. And the fact that they're stepping in here. I mean, we only had one good month of imports, that was November and they already want to put on the brakes here, okay? And I think it's just, you know, the cartels in it, you guys got [inaudible 00:04:20], you're the biggest consumers of gold, we got a problem with gold, get your people to stop buying gold because we don't have the gold. And there's a great report in "Zero Hedge" about the fact that the auditor for the U.S. gold looks like he's been lying all along. It's a very complicated long article but it's on "Zero Hedge" you can go find it and read it yourself. You know, and a lot of us have believed that there is no gold, okay? So that's one of the reasons that we like owning the physical metal here and not the ETFs and stuff like that.

Craig: No doubt about that.

Eric: That's a little bit of frustration, we got that off my chest, let's move on.

Craig: How about economically? Kind of a quiet week for economic news as we approach the holidays. But again, nothing that's like, "Oh boy, it was a roaring, roaring US and global economy."

Eric: Nope. FedEx warning. Nike's earnings were good but their go Boeing, the problem at Boeing. I'm talking about that company thing. There's lots of companies that keep saying things aren't as good as we'd like to be. The trucking indexes are down, the Baltic Index is down, existing home sales were down, consumer's comfort was down. Other than that, it's great economically. Only one further thing to say is that, you know, there's no inflation unless you're in the middle class and poor in which case you have lots of inflation, okay.

Craig: And you know, Eric, and let's put this out there too. I had a couple people interview me yesterday, this came up twice and I had...in each interview, and I had to point this out. The basic premise of the question was, "Yeah, well, you know, the fed is saying that they're done moving interest rates and that, you know, everything's great and flat for next year." And I said, "Do you not remember what they were telling us last year at this time?" Come on, you can't believe these guys.

Eric: [inaudible 00:06:15]. They did an about-face about three days into the year last year.

Craig: Yeah. So this notion that the, you know, the economy is great and interest rates aren't going to move next year because the fed says so. Well last year at this time, the fed said they were going to be raising rates four times in 2019, so let's not go overboard thinking that they know what they're talking about. Also on the plate this week, like you said, there're not a whole lot of physical news but we are approaching like today's a big expiration day on Wall Street. You mentioned option expiration and then just going into year-end, tax loss selling, maybe we should talk about that. Is your sense that that's getting close to being behind us?

Eric: Oh yeah. Well, it normally ends I always think around the 22nd of December, something like that, because most people have done what they should do, right? You don't wait for the last day and, of course, a few brave souls know that it's the time to buy because everyone's puking out their losses here and you can score some pretty cheap shares. So I would say it's effectively over here and even if it's not over, you know, if you buy it today, I mean probably five days from now the stock is going to be higher if it's obviously been under a lot of stress here.

Craig: Now we're wrapping up a pretty good year in both precious metals.

Eric: We are, aren't we?

Craig: Gold has outperformed silver, obviously. Gold's up about 15%, silver's up a little more than 10%. In your mind Eric, what would be a catalyst to help silver surge next year and kind of catch up at least on a percentage basis?
Eric: Well, of course, I've always believed in the get the physical shortage working. You know, that people realize that you want to own real assets. I mean, we have these central banks doing all these weird things all over the world, surely to God, we get it. We got stock prices that are, you know, 10-year highs with an economy that chugs along at 2% reported growth, probably negative in real terms because inflation is understated. You know, we're not making any progress, the average person is not making any progress. How can the average person not make any progress yet somehow the economy is making progress? I don't believe the government, okay? You know they'll lie about anything. And between the bank and the government and everything's wonderful and the unemployment rate's down to 3.5 or whatever the hell it is, 3.7, which I don't believe because so many people have two jobs that they count them in both jobs and therefore distorts the numbers. You know, it's not as good as everyone wants us to believe it is. So the thing could rollover in a nanosecond and I know exactly what performs best in that environment and it's gold and silver. And you know what? It's done not too bad this year, in a good market. And the stocks have probably kept pace with the major averages if this year, if not better. And I don't even...haven't look at that data. But I know that between the Junior Silver Miners which you're about to break out, and the GDX, which I think is about to break out, you know, we've had a good year.

Craig: That's for sure. It looks like next year it's going to be really interesting too. As I mentioned, we did recorded two segments of "Ask The Expert" just a couple of days ago, the one where we focus on gold will hit the sprottmoney.com website today and then we have another one where we focused on silver. We just simply tried to hit as many of the names that are sent in every week as we could. We've got some more names this week, but Eric, I also have just some general questions, I just like to get a quick answer from you on. One of them, somebody just said, "Hey, you know, you buy a lot of mining companies, do you have your own sale discipline?" How do you know when to sell at either a profit or a loss?

Eric: That's a great question and I will answer it but two other things I should have mentioned, okay. One, I just I apologize I hadn't got to these, the Horowitz Report, okay? Now I know it's awful when you lean one way or the other politically but I think the Horowitz Report definitively defines that quite frankly, the Steele dossier was paid for by the Democratic National Convention to make Trump look like he was aligned with the Russians and it was all garbage for two years, just my thoughts. I want to talk about a couple of things going on in China, of course, I had to read disgustingly that some Chinese criminals are causing swine flu, if you can imagine. Now, that's an awful, awful, awful thing to have to contemplate that people are doing it on purpose. Oh my God, what would happen on the supply of food in the world? And I noticed that it's gone to in Indonesia now. Also, that some Chinese guys were hackers and they have been negatively affecting the Bitcoin market, criminal gangs. So anyway, I wanted to mention those two things.

Now the question of when I sell. I have two things I look for when I sell. One, is somebody taking me out on my position because he's taken over the company? Fine. Thank you very much. See you later, as long as I don't disagree with the price. The other thing would be if I can see some opportunity that is way better than the opportunity in hand, okay like the one I own, then I'll start the process of trying to move things around. Like if I really, you know, had no ability to buy the new one and I needed to sell something, I'll go through, "Okay, which one I'm going to sell here? Which one is not working so that I can create some funds for what I think should work?" Because in reality, your latest idea should always be your best idea. I know it might be a tough concept to imagine, but you know, if I get really excited about something today, it better be my best idea, you know. So it's the trade-off, okay? When you trade one thing offers the other. And I'm not much of a trader, like I've certainly gone full cycle on lots of stocks here because I'm not much of a seller because the conditions aren't available. I tend to own big positions and even if I think it's a poor place, there's nothing much I can do about it and I got to live with it.

Craig: Yeah, that's true too. All right. Had a question dealing with the gold, silver ratio, this comes up every once in a while. Just to you, just quickly what do you think the proper gold silver ratio is?

Eric: Fifteen. And I say 15 because I think it's available in the Earth's crust 12 to 1 as a currency. When it was a currency, which is not that long ago, was 15 to 1. When I look at the size of the market, I mean this market is so small, we got under 20 billion of silver theoretically available in the world to buy. You know, that might be sitting in some inventory somewhere and that probably includes in the ETFs already, so it's not really viable. My God, if somebody came in and said, I want to put a couple of billion in the silver market, I think it could move things around. So I honestly believe it should go back to where it always was, 15 to 1.

Craig: Fair enough. And just one other question, this is probably something that's come up on people's minds from time to time. Do companies pay taxes only where they are registered, have their headquarters or do they also pay taxes wherever the mines are found?

Eric: Well I could probably answer that, you know, for the questioner. If you were the government where the mine was, would you want to get the tax on that mine?

Craig: Yeah.

Eric: That's the answer.

Craig: And if you're the government where the company's located, do you think they're just going to let you off the hook?

Eric: Hey, they both want their pound of flesh, are you kidding?

Craig: Good point. That's a good way to look at it. All right. A couple of other names that came in this week too late for "Ask The Expert" just get your quick thoughts on this company called Rio2.

Eric: Well, it's a company I've invested in. It's a large ore body, I think it's like six or seven million of ounces of resources. They had a feasibility study that came out, looked pretty good. I think at $1,300 gold it had a NAV of 222 million, I think the market cap's around 60. And, of course, had 1480 gold. You never know that NAV can double, it's a funny thing. And at the margin, you know, that little $180 increase could double the margins, which then doubles the NAV. So you know, if it doubled the NAV, you'd have a 450 NAV with a 60...it's U.S., so we're going to make that almost 600 Canadian with a $60 million market cap. So potential tenbagger if everything works out.

Craig: The other one that came in was Continental Gold.

Eric: Well, Continental just got bid for by Zijin Mining. We actually made a $25 million investment in about four months ago at 310.

Craig: That's handy.

Eric: It was very handy. They bid 550 for it, that worked out very well for us. Mind you, you know, we weren't in it to make 60%, we're in it to make multiples of whatever the hell we invested in it. And then my own view is they might've sold it a little too early, there's something called the [inaudible 00:15:11] curve that, you know, as you're exploring things go up and then once you talk about bringing into a mine, the stock goes back down again. But once you go into production, the stock starts typically going up again and they were just about to go into production. So we may find out ultimately we left quite a bit on the table but we'll take our gain.

Craig: All right. And then just lastly, I mean there's some that we discuss it seems like almost every week that you're excited about, I'm excited about. Any thoughts on some of the miners that we often cover here?

Eric: Sure. Well, I'll start off at Tudor only because, well they came into my office, I think it was actually last week or it might've been this week, the weeks go fast around here. And one of the things that they announced this week is that rather than just showing gold as simply the gold content of a hole, they have other metals in the hole, they had copper and silver. And so they rereleased those assays with what we call gold equivalents where you include the value of those other metals. And in some cases, it improved the metal content of the hole by as much as 24% and let's say an average 15%. But you know, when you have a low-grade deposit, in their case it was let's say under a gram, and you can add 15% to the value, you might double the NAV because he might only be making 15% profit because it's low-grade. So the extra 15% is incredibly important. I was doing a little work on Tudor this morning and kind of working up, you know, what are the...they say the dimensions of their deposit are 600 by 800 and I know they got a 300-meter depth to it, that's very high-grade then it actually goes down to like 800 meters but if I use the 300... And you can come up with things like, you know, over 10 million ounces of gold there but now it's in a tough area in the sense that it'd take a lot of money to develop those things, it's up in the Golden Triangle. But I think on a long-term basis you see gold prices go up here, that's the kind of stock I like. They're just north of Seabridge that also has something like 37 million ounces of the same quality of gold, trades at $1 billion, I think Tudor trades at 65 million or something. So it looks good.

I should talk about Kirkland, they've had a raft of announcements out here recently, like a lot. And I would suggest the reason they're putting out those announcements is because they have these takeover bid ongoing. And because Detour trading above the bid price and it's important to them that people understand how good things are going at Kirkland. So they announced the Swan drilling a week ago, they announced that the Cosmo operation up in the northern territories, which has been on care and maintenance is likely to go into production beginning in February of 2020, might produce 120,000 ounces. They announced that they're going to build a 4.7-kilometer ramp from the Fosterville mine over to Robbins Hill, this will be an underground thing. That's a big endeavor, man, a 4.7 kilometer... And they announced the Robbins Hill drilling was going very well and they haven't even got down to the level where their real goodies start showing up yet. But when they get this ramp finished, they'll be able to drill from the ramp and get into the key areas. They also announced they're going to put a ramp into the Amalgamated Break and that I hadn't heard before. And of course that would mean that we're going to get production from the Amalgamated Break sooner. And, of course, the grades are way better than what they're mining now so that could have a very, very large impact on earnings coming out of the [inaudible 00:19:09] operation. What else [inaudible 00:19:09]?

Craig: Wallbridge.

Eric: We'll talk about the Wallbridge. The only news that came out this week was they did a flow through deal, something that we do in Canada where the tax benefits flow through to the buyer. I was a participant in one of those at 95 cents, but you get the tax write-off, so that's why you pay way above the stock price. The stock has been trading beautifully, we're all in tender hooks waiting for some news here. But I think the fact that, you know, if I was to generally look at it, then say, well, you know, why am I there? I'm there because the way this thing's shaping up and these holes that they've already giving us an indication that they're wide and they got lots of visible gold and sulfides, I think when those results come out, like we just don't know how big this is going to be, but it could be very big. Do I think it could go up 10 times? Of course, I think it could go up 10, but will it, I don't know. Look, it could go down 20% because of what would be perceived as a weak result. But you're talking about something that's already shown, it extends over a kilometer, a strike length, and now we're down into the goodies down below. Well, you know, maybe they extend over a kilometer too. So it could get very dramatic here when these drilling results come out. So I love it here, I was happy to pay that price which seems like ridiculous because I was, you know, I think back to when it was 30 cents and I was just dying to get into it but it was restricted because the rules and the TSX. But anyway, it's been wonderful for everybody and they hit a new high yesterday and hopefully will continue to do so.

Craig: It has an interesting year ahead of it, that's for sure. You're not going to be around next week, and just anything else on your mind before we hit into the end of the year and the new year or I guess, and then we can wrap up too?

Eric: Well, I would say same old, same old, I mean...and there's lots of reasons to be excited by gold and silver here. Hopefully, we get our breakout. We're almost getting a breakout in silver here, going through...it's gone through 1725 I think, close to it anyway. So, you know, and when I see these commercials going short all the time and then getting deeper and deeper and deeper into it, I do believe there might be alternate forces out there at work that maybe are going to take them on, so it could be a lot of fun going into 2020.

Craig: Well, I look forward to getting caught up with you once we get back together in the new year. In the meantime, hey, just another reminder, go to sprottmoney.com, not only will you find all kinds of great bullion products there, just all kinds of things. And we always be stacking some physical metal, you'll also find the gold-focused "Ask The Expert" with Eric that we recorded this week that will be posted there today and the silver-focused one will be posted next week, so be sure to check back next week as well. Eric, my friend, Merry Christmas, happy holidays, happy New Year, all that jazz and I look forward to a great 2020.

Eric: Hey, Craig. All the best to you too and your family. Enjoy.

Craig: Thank you. And from all of us here at Sprott Money News and sprottmoney.com, Merry Christmas. Happy holidays. And we'll talk to you again next week.