“All other assets got crushed.” - Eric Sprott on gold’s great week - Weekly Wrap Up (October 12, 2018)

Transcript

Craig: You're listening to the weekly wrap-up on "Sprott Money News."

Craig: Well, greetings once again from "Sprott Money News" and sprottmoney.com. It's Friday, October the 12th, and this is your weekly wrap-up. I'm your weekly host Craig Hemke, and joining us this week once again is world traveler Eric Sprott. Eric, welcome back.

Eric: Hey Craig, great to be here. That's a tough trip going down to Australia and back, but it looks like everything's on the up-and-up here. So, I was happy to go there and happy to chat about things.

Craig: Well, I tell you what, are you drinking coffee or is it cocktail hour or what is it for you at this point?

Eric: No, it's coffee. I'm back in the Eastern time zone now.

Craig: Okay, all right.

Eric: And even if it was the cocktail hour, I'd never admit to you.

Craig: Good boy, good boy. I don't hear any ice cubes jingling in the glass, so I guess all right, we're okay.

Eric: All right.

Craig: All right, hey, before we get started as we always like to point out before we begin, Sprott Money, great place for anybody that's stacking metal or looking to store metal, and we do have two brand-new exciting offers for all of our listeners here this week. A one ounce Royal Canadian Mint gold coin, and a one ounce Royal Canadian Mint silver coin, very special prices. The Gold Maple Leaf as low as $39.95 over spot, and that Silver Maple Leaf can be purchased as low as a $1.85 over spot, great deal amongst other great deals that can be found at sprottmoney.com or simply call us at 888-861-0775. Eric, what's fun after yesterday, that spot price is up almost 2% for the week, 3% yesterday, best day yesterday, Thursday for the gold price since the reaction to Brexit, which is now two and a half years ago, June 24, 2016 was the last time we had a day even remotely like yesterday. How are you feeling this week?

Eric: Well, obviously, yesterday was a great day and the fact that well, the things that really please me, you know, I've never been much of a believer in the stock market here, that I think it's kind of up on air. So, to breathe a little reality in the stock market is always somewhat appealing to my sort of logical process of what should happen here, and, of course, the fact that gold rallied while all other assets were getting crushed. And I would include that as you know we talked many times about the bond market that's been crushed this year, now the stock market is getting crushed.

I found it very interesting that Bitcoin was down, apparently, 5%, the gold was up almost 3% in the futures, the stocks were up over 7% on the day the, Ulis [SP] now are up something like 18% in a month.

Craig: Yeah.

Eric: Which is the sort of thing that we expect, you know, that when it goes it really goes fast. Now, whether or not it's sustainable, you know, we're going to have to play this one out, I mean, it looks like it's broken out of its April to October downtrend here. Support I think is around 12,15 something like that, and we're trading at 12, 22, so we're in pretty good shape here. Silver has been a bit of a lag and relative to what you might have expected, but generally the fact that the stocks are weak and people immediately ran to gold, and not just the price changing but the... Even the ETFs I think they took on something like almost nine tons of gold yesterday. So, that's a very encouraging development here to see all of that happen almost overnight, and let's hope that it's sustainable.

Craig: Hey, I want to ask you, it's just your opinion on something, it seems too that there's kind of a sea change yesterday, you mentioned gold going up so dramatically. I mean, and again best day in two-and-a-half years, and there's this something that really we've never seen before, you know, President Trump for all his bombastic Twitter remarks and everything else, all of a sudden is coming after the Fed, and coming after the head of the Fed, Jerome Powell, and insinuating that, you know, he doesn't want his stock market and his economy ruined by higher interest rates, and we've never seen this before Eric.

Do you think that kind of rhetoric could have any impact on forcing the Fed to kind of change course and alter their plans?

Eric: No, I don't think the rhetoric does, I think the action in the stock market does though.

Craig: Yeah.

Eric: You know, if the market continued to sell off here, there's no doubt that the Fed will react to that. I mean, if people are worried about, you know, the next hundred bases point move, having seen already what the most recent moves have done to housing and auto sales, which has been very negative. Yeah, I think the Fed for sure will react to a further stock market decline, and that they might even react to a decline if it continues overseas, because of the overseas thing, and particularly now Asia, which came apart during the middle of this week is starting to have an impact on our market because you can't have, you know, the markets for 90% of the world's population is crashing and one market not crashing, because people have to sell things, and when there's a liquidity you sell the winners, okay. So, lots of people own lots of the U.S. stocks, and if all the European stocks or all our Asian stocks are down, they're going to be leaning on their U.S. position. So, the Fed has to be very cognizant of what's going on around the world, and I think what's going on around the world is, these rates are starting to hurt, and we saw it reflected in the yields, of course.

And then once the yields go up, I mean, the whole precedent for valuations of stocks, and houses, and other things going higher is pulled away from you. So, things start falling down, and you can get into a bit of a crescendo, we saw that in the last two days with Marcos [SP] down, I guess at their extreme something like 1400 or 1500 points in two days, it's pretty shocking. So, yeah, the Fed will be standing by, but I don't think Trump's comments per se will be taken too seriously.

Craig: But you did mention the mining sector has rebounded, and that was certainly encouraging yesterday, I'm not sure if it was short covering a whole bunch of new money coming in or both, but even things like the GDX and the GDXJ came bouncing back along with the entire index the HUI. Is that typically how things turn with a big jump up like that, a big rally in a month?

Eric: Well, they're typically quite fast, and, of course, lots of people were shorted because everyone knew that it was over for gold because it wasn't a safe haven asset anymore as, you know, the market tended to buy into. But thank God we found out quite quickly that it is the safe haven asset, and they had to reverse themselves, so I'm sure there was lots of short-covering there, and lots of portfolio managers. I mean, when you look at the results at the end of the day, red, red, red, red, red, black, "Oh, what's that?" "Oh, that's gold is in the black, well, maybe we should have some of that, you know." I mean there was nothing that went up, other than gold, so, you know, the computers will be spitting out that gold outperformed the market by probably at 10% in the last week, that's not a bad outperformance for a week. If it could do that for a couple of weeks, it almost makes a year and even the stocks going up 18% on a month is like that's a year right there, that's a pretty good move, so and maybe we've just started.

Craig: And it is October, and as we record on Friday morning the New York Stock Exchange hasn't opened yet, and it's looking to open higher. I think S&P Futures are up 25, 26 points, but, boy oh, boy, if it rolls over today Eric, if we go down, Monday could get interesting too.

Eric: Yeah, that wouldn't be pretty at all so...

Craig: My friend you've been like I mentioned, you've been traveling the world. I know you were down in Australia, and looked at some stuff down there, and presented a few conferences. I thought it'd be fun just to have us wrap up, by you telling us some of the things you saw, some of the things you learned while you were over on the other side of the planet.

Eric: Well, essentially I went to Melbourne, I just had a little talk at the Australian Club there, but also Melbourne is the home to the Fosterville Gold Mine, and we reported our production results, Kirkland Lake reported their production results on Tuesday of this week. We produced over 180,000 ounces in the quarter, with a good improvement in Fosterville was over 90,000 ounces. So, that was... That's very encouraging and I always remind people that 4 times 180 is 720, some people can't do that, but that's not a bad annualized rate of production, considering that their estimate was something like 620.

And we've seemingly done better in most quarters, we're just getting into the Swan Zone, I think it provided something as 7500 ounces in that quarter, but the Swan, you know, has grades of 60 grams. So, that's almost two ounces per ton, so that should be... When we get in there that should really help our production now to Fosterville. So, things went well there, I was very pleased with Kirkland stock going up over 11% yesterday, but it makes me hearken back to something and why the stock got so low. I mean, when it was taken out of the GDXJ, because it's market cap went too high, in other words, it was too successful, the GDXJ analysis that on a certain date they'll be disposing of their position in Kirkland Lake.

Now, I find it kind of ridiculous that, one of the things that we all know about the market, don't even show your order on the floor, because here's about 50 guys that will try to front run you, just in a minute's notice. Well, give them a month's notice that you're going to do this trade a month from now, and you got everyone piling on, and I think Kirkland suffered by that. So, I questioned the whole structure of the ETF, I think they should change it, they shouldn't pre-announce, because the market is made up of people taking advantage of others with a foreknowledge, that's what high-frequency trading is.

They have a foreknowledge of your order before it gets to the floor, well, imagine if you give them a one-month's foreknowledge of something that... So, I think it caused Kirkland to be oversold, and I wasn't surprised to see it bounce back. But anyway, things are great down there, I also visited the Beta Hunt Mine that's owned by RNC Minerals, that's the one that where they came out and said they think they'll find 30,000 to 35,000 ounces in the Father's Day vein, they've subsequently come out and says it looks like this thing extends quite a bit further. But there's no tangible results going along the sedimentary structure that they have found more yet, not that they've drilled it by the way, so we can't expect anything yet.

But I just... If this comes together that there is a lot of structure to be mined down there, they mean they have eight kilometers of structure, the sedimentary zone goes through the whole eight kilometers. We don't know how well it won't be endowed, I mean, it's not going to be like the Father's Day vein, because that would just be impossible that something would be that great, it was unheard of the amount of ounces they pulled out of there in such a short time. So, we'll have to stand by and see if they can do a little drilling, and then prove that this thing will have multi-ounce potential along the strike of that paretic [SP] zone, but I think there's reasons to be optimistic on that front.

I also visited the noble properties in Karratha, both the conglomerate properties and the marine sediment properties. As Quentin Henning has suggested, he's kind of leaning towards the mining of the marine terrace rather than the conglomerates, because conglomerates, of course, are, you have to go underground for the most part to extract them, and we have not been able to provide the market with the kind of results, where we can say with any degree of certainty, how commercial it would be. I think the marine sediment is going to be a lot easier, it's just something you just peel right off the top of the surface. And now that we've made a couple of acquisitions in that area to further out our land holdings, I think that's going to be the area of most influence here, and keeping our fingers crossed that we can quickly determine the commercial feasibility of the marine terrace sediments.

So, we'll stand by on that one. And so that's, I think that about covers the...I'd hope to visit property in Japan, but we got typhoon doubt and couldn't make it, but everything else seems to be coming together pretty well here, in particular, the gold price, and the rebound, and the interest in the gold stocks generally. So, fingers crossed, let's hope we can keep the trend going.

Craig: Sounds like a fun trip, and back to that ETF thing too, Eric, talk about it's almost irresponsible of [inaudible 00:14:31] to announce, because how it hurts the shareholders of their own ETF.

Eric: Well, that's the funny part, you know, the construct is wrong, it needs to be revised, that's what I think. I mean, if I could give them some advice, please revise your methodology, it just is not working anymore, and if, you know, the stock goes down 10% every time you take it out, and goes up 10% every time you put it in, man, I don't even want to think about how that affects your results so.

Craig: Yeah, exactly.

Eric: Any much worth thinking about it.

Craig: I hear you, I hear you, well, all right. Well, it's nice to have you back and that was...sounds like that was quite the trip. Again, I want to remind everybody before you go, check out sprottmoney.com and you can call us at 888-861-0775, those are great deals here over the weekend. Again, Gold Maple Leaf, one-ounce coin, just $39.95 over spot, and that Silver Maple Leaf as low as a $1.85 over spot, that's a tremendous deal. And so, please check us out. Again, it's sprottmoney.com, Eric, thank you for your time, thank you for all you do for the entire sector, and let's keep our fingers crossed, we can have another good week next week when we get back together next Friday.

Eric: That'd be fantastic, great to be back, and all the best to you in the weekend.

Craig: And from all of us here at "Sprott Money News" and sprottmoney.com, thank you for listening and have a great weekend.