“Always The Right Time To Own Physical.” - Weekly Wrap-Up (Jan 25, 2019)

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Craig: Well, hello once again from Sprott Money News and sprottmoney.com. It's Friday, January the 25th. It's time for your "Weekly Wrap Up." I'm your host, Craig Hemke. And joining us, as usual, this morning is Eric Sprott. Eric, happy Friday.

Eric: Hey, all the best to you too, Craig. It looks like we might end up with a decent week here having sort of stumbled around, but it's been good in stocks and it's kind of okay in the precious metal. So, not a bad week.

Craig: Yeah, we just get the week to end before they come and smash us again. I think we'll consider it a smashing success, Eric. And for everybody that's watching prices, wondering when the right time is to add physical, it's always the right time to add physical, let's just put it that way. And a great way to do it is, of course, to visit sprottmoney.com. If you check out our Sprott signature sale, this is an important time to do it because there are great products there. And some have already sold out. So, don't miss a chance to purchase random year products at discounted prices. You can't beat that. Call 888-861-0775. Or of course, you can visit the Deals page on sprottmoney.com for more details. Eric, like you said, surprisingly enough, we're actually up so far on a Friday which gives us slight gains for the week, which is just fine with me as we move to wrap up the month next week.

Eric: And, you know, we've had some interesting things happened. We had the Golden Cross here with the 50-day going through the 200-day. If it would hold here, we'd get a new closing high, recovery high here, and the previous high was 1286. We're at 1288 as we speak. So, yeah, I think things look okay. One comment I should make is about the Palladium Market. We had this backwardation going on here where, you know, the Sprott price is way beyond the 1 Year Gold Price, showing that there's a shortage. And interestingly, the palladium ETFs have seen a drawdown because people are using the ETFs to find their palladium. Now, that can only last so long, you know, until the ETFs got nothing in it. Then you have a real shortage on your hands.

So, I think there's lots of encouragement. I saw a great article by Steve St. Angelo saying that look like silver production would be down in 2018 when we finally get the final numbers here. So, on the precious metals side, I would say most of the info is good. As you and I were just discussing, the GLD seems to be hammering away at putting a lot of gold into this ETF here. And, we saw a number, I think the last report, a number like 10 tons in the day. Well, my God, if you could do 50 tons in a month, I mean, that's 600 tons a year. That's like 20% of all the mined gold in the world into an ETF that formerly was the seller of gold. So, that would be a very, very dramatic change. So, that looks very good.

Craig: Speaking of physical questions and physical statistics, you know, we know there are all these dollar creditor nations, countries like China, Russia, etc, that have massive dollar reserves that are converting their dollars into tangible assets like gold, which is, you know, they're doing it, why wouldn't your regular person do it as well? And we have the latest numbers on Russia. Everybody knows they're adding gold to their reserves every month. They added 224 metric tons in 2017. But now for 2018, we know they added 270 metric tons. So, they increased it by 20%. That's a lot of gold that's leaving the market too.

Eric: Well that and of course, the most stunning thing would be if the Chinese are actually back in the market. As you know, they said they bought 10 tons in December. I mean, if the Chinese literally were in the marketing, you know what, there's some signs that they might be. And the sign I would use or have used mentally, is normally you see these big sell-offs in gold, where the commercial's try to whack it down. And I've found recently when it gets marked down sharply, it tends to rebound. In other words, there's a real buyer there, you know. All of a sudden they get it down to a price where ta guy says, "Fine, I'll take some of those tons off your hands." Well, of course, they don't have any tons. And the whole ruse ends and then back up, she goes, just like we've seen this week, where we've had a couple of brutal down ticks. But you know what? It seems to rally back again, which to me, is a sign that there's real physical buyer standing in there. And of course, when a paper seller is confronted by a physical buyer, we know who's going to win that one.

Craig: That's right. And that's the side we want to win. That's for sure.

Eric: Absolutely.

Craig: All right, my friend, we've got some interesting stuff going on in the U.S. Just here this morning, we expected, or at least normally would see a durable goods report for December. With the ongoing government shut down, there was no durable goods report. There are no Federal employees to crank one out. This is an ongoing problem. I think we're starting to see maybe some impacts on U.S. economic growth. At least, the actual employees that don't have paychecks, but also just the perceptions of everybody else, you know, and as they look forward. You know, the Fed has said they're data-driven, Eric. There's not much data there, but boy, you sure would think this might start to impact things as soon as March.

Craig: Of course it will. And, between the employees and, you know, for example, someone suggested, I'm just trying to think of who it was. I think it was a politician. It might've been Wilbur Ross. That the bank should lend these people money, which they should by the way. In fact, they should almost give them the money, considering the rip up machine they had there. So, there should be a solution to this thing. There's no doubt that the sentiment is in favor of getting it resolved, but it's quite negative. I was reading an article this week, where there was something like $139 billion of unexplained government expenditures last year. I think, well, maybe that'll be down this year. Okay. Because you can't spend it if you're not operating. That's probably the only bit of good news. But, it's shocking when you see these statistics about the government and the wastage. And, you know, you're sort of wonder what they do all day long that's truly productive. And I don't think there is much that is productive, to be honest.

So, it doesn't bother me that the government shutdown is probably a good thing, but it's not going to be good for the economic spinoff. That'll be negative.

Craig: Yeah, exactly. We've got kind of in-between fed meeting next week, so people might want to keep an eye on that. It's not considered a live meeting as they call it, but there will be, you know, some statements afterwards, so people might want to watch for that too. Because I would sure think, and I imagine you're thinking this too. The March meeting is going to be the one to keep an eye on.

Eric: Yeah, and of course there's lots of signs of dovish snus. I think they would be ridiculous to imagine there'd be a rate increase and/or maybe even the continuation of the tightening. It's probably the tightening is more critical than the rate increase. Because I think people sort of realized there's a relationship between stock prices and the fed taking money out of the system. So, I think that's probably likely to be more on the table. And I think if they announced that it's off the table, it'll give gold and all the precious metals quite a shot in the air.

Craig: Yeah. Eric, in our remaining time this morning, let's talk a little bit about the shares. You know, we kind of hope that the metals would continue their rally as the calendar flipped. And then that should have driven the shares higher too, but the shares are actually kind of flat to down on balance this year. But gosh, with this M&A activity picking up at least between the majors, start to wonder if, you know, maybe institutional attention is going to start being paid to our sector this year. How do things look at least to you as the year begins?

Eric: Yeah. Well, you know, unfortunately, my viewpoint is sometimes a little myopic because I look at it through the lens of Kirkland Lake Gold, to a great extent, right. And, of course, it continues to hit new highs here. And the fact that Gold Corp and Barrick both names disappear, it puts Kirkland Lake in line as the largest Canadian gold producer. And very likely in my mind to go into the TSX 60, which I think it fully deserves to do on an earnings basis, on a market cap basis, on future production basis. So, that's hanging together. And, you know, I'd never really spent much time looking at senior producers because well, man, they're having a tough time getting their production up. And I know the Barrick's report, they just hit the low end of the guidance. So, I think it looks good. If you're a producer who can keep it together here and show growth, I think there's gonna be lots of interest.

I'm also seeing interest in juniors. I got lots of interest in juniors here. You know, I'm into something called RNC Minerals. They brought out a new release. I just drilling release this last week. We're hoping that they would find another very high-grade zone. They found two small high-grade zones, which is good and encouraging. And I'm thinking that logic says they're going to find other very high-grade zones on this property. So, I wouldn't say they're home and cooled out yet, but the initial drilling was great. And one of the interesting things about the drilling is they didn't miss on any holes, which is a little unusual...no, no, it's a lot unusual that they didn't miss on any holes. So, that's very good. I'm a big investor into something called L'Auberge [SP].

And by the way, none of this is investment advice. It's just me narrating on sort of things that I see. And, I'm quite keen on the way things have evolved there in terms of the size of the ore body, both extending laterally, extending vertically. The grades have been good. They have some holes that are in the top 10 holes drilled this year in terms of grade length. So, that's pretty good. I think we'll see some drilling results that have a company called Sokoman Iron that's drilling in Central Newfoundland. Fingers crossed on that one, I have no idea what's going to happen.

But one of the things that I have sort of resolved in my mind is, you know, grade is everything. It's everything. When you see what happened at Fosterville and the grade goes up, and there's no cost to getting more ounces when the grade goes up. And when I look at, for example, Walbridge, I realize, my goodness, the grade could be whatever, 15 grams here, which is way, way, way beyond. But the average mine is 1.7 grams. Well, if you had 15 grams, you had a lot to work with. Okay. That's a lot of money per ton of ore.

So, we've had some great drill results both in the case of Kirkland and the case of Walbridge, Sokoman, RNC Minerals. And these things bode well for profitability in the future. Note, three of them are not even mines yet, but we're going to be there. So, I find it really interesting in the space as the precious metals prices start popping up here. And when you think that the economic future i.e. the dovish snus that's likely to happen here. And it's impacted what's going to happen to gold, the fact that the institutions are buying the GLD. These are all very great signs.

Craig: Yeah. I might just point out if we go back to just as recently as 2016, everyone remembers the price rallies of 30% in gold and 50% in silver in the first half of that year. But in as late as mid-January, the GL-...sorry, the GLD, the HUI, the HUI Index was still down at 100. And then it went to about 280. So, there's still time to get on board some shares if you do your homework and find the right ones. I mean, this could still be a pretty valuable year for everybody.

Eric: Yeah. No, I think it looks pretty exciting. Actually, I'm very much...I look forward to every day here. And it's been pretty good so far. So, I hope it continues.

Craig: Well, I look forward to every week talking with, Eric. But for now, I think we better shut it down. But, you know, even before we go though, just another reminder about Sprott Money because it's the first of the year, and people got to start doing their tax planning, and their retirement planning, and of course, you can invest in precious metals in a retirement plan. And Sprott Money can help you do it. To learn more about precious metals and the self-directed investments just visit Sprott Money and you'll find out everything you didn't know. Just sprottmoney.com. Of course, always can call us, 888-861-0775. My friend, always insightful to visit with you and I very much look forward to catching up with you again next Friday.

Eric: Hey, Craig, let's hope for another good one.

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