“Big Things Can Happen This Year.” Eric Sprott Looks Ahead To 2019 - Weekly Wrap-Up ( Dec 28, 2018)

Transcript:

You're listening to The Weekly Wrap Up on Sprott Money News.

Craig: Well, hello once again from Sprott Money News and sprottmoney.com. It is Friday, December 28th, 2018 and this is your final weekly wrap up for 2018. I'm your host, Craig Hemke and joining us, as usual, this morning is Eric Sprott himself. Eric, good morning.

Eric: Hey Craig, good morning, I'm in Mexico and the telephone service is not the best, but let's see what we can do here.

Craig: We'll see if we can make it happen, my friend. Hey, and as we wrap up the year, just a couple of good reminders from Sprott Money, always important to have a safe place to store your physical precious metal and Sprott Money is one of the best places you can do that. If you open a storage account with Sprott Money, you can store and secure all of your metal, you can store metal at any of our six global locations. Just simply sign up for Sprott Money international storage and receive exclusive monthly deals from us as well. Just give us a call, 888-861-0775 or just simply visit sprottmoney.com for more details. Eric, it's a good time to be stacking, boy. I tell you what, we're finishing the year strong. You and I have discussed this now for weeks how the last five years in a row we've had a big rally in the precious metals that begins in about middle December and extends into the first quarter. Well, I think we're on our way in making it six in a row, my friend.

Eric: Well, there's certainly been no disappointments on that front. And, of course, we've been aided and abetted by the tremendous weakness that was experienced in the stock market, so much so that most indices in the world were in bear markets, say for the rally here that happened on Wednesday and Thursday this week. But then I think they all , which I think it's instructive, certainly for people in the precious metals business, because even though we've had a bear market rally here, I suspect it will roll back over again. I think it's interesting that gold and silver, particularly silver, has fared very well, even while the markets rally. So I don't know that the precious metals markets are buying into this bear market rally that we're going through. So lots of good science for great things to happen.

Craig: Eric, there seems to be...I'm reading a lot of folks saying that the rally in gold is only due to some kind of safe haven bid as if it that's all gold is. And I wonder if you agree with this. It seems to me, again, besides the seasonality aspect and these rallies that occur at this time every year, gold seems to be anticipating what is obvious now, I think, the change of Fed policy this coming next year. Why wouldn't gold be rallying if it's simply looking ahead to lower interest rates and more QE?

Eric: Well, I think it's parts of both obviously because the bear market I just referred to was so sudden, so swift. I mean, we were just killing stock valuations here, and valuations of the biggest of stocks, the fangs [SP], the banks. Oh my goodness, I mean, those groups are down in excess of 30% here. So it's been a brutal quick bear market, which, of course, it has brought people with the safety bit in there. And, of course, the more the market goes down, the more people think the Fed policy is incorrect. And I think if we talked about this before, but you go back to first principles where, you know, Fed prints money, Fed reduces rates, assets go up in value. Now we have a situation where the Fed's increasing rates and not printing money [inaudible 00:03:44]. And sooner or later, if the bear market sort of reasserts itself here, I have no doubt that the Fed's going to reverse their position. And if there's a reversing of a position is actually printing money again, I think this time, gold is going to rocket because we realized that it didn't really work, it's a plan that has no permanent positive conclusion. I mean, yes, you can get asset values after a short time but look what happens when you take the Punchbowl away. I mean, we now recognize what happens when you take the Punchbowl away. And it's not pretty and it's fast. So I think both elements are reasons that gold is going up here.

Craig: Well, now, Eric, I want to turn our attention to the shares because they have begun to perk up. The HUI index is breaking above what seems to be an important level at 160. But I'd like to ask you for your comments on the significance of the tax law selling that we always see in December, especially from Canadian citizens and getting that behind us, and how that often removes a little bit of a barrier to the shares in general too.

Eric: Well, as you mentioned, some of the indices look like they're technically breaking out. I think the GDX might technically be in a bull market, quite frankly. And, of course, you can see some of the more intelligent people in the world suggesting gold now, whether it's Dalio or Druckenmiller or [inaudible 00:05:18]. I mean there's a whole slew of very, very smart investors suggesting people go there. And so, with the tax law selling over and us having had, you know, a really tough year, I think the levitation process could be quite significant here. So I'm happy to watch things today and I think it'll particularly help a small-cap start where the damage was even more than some of the bigger ones. And between that, and perhaps the people who try to sort these things, they're looking at a bull market in gold equities as well. So maybe they won't be that quick to strap on short positions that we might really get some action going here. So I think the end of tax laws, the recognition of a bull market is going to play very well in all the precious metal stocks.

Craig: Any specific things you've seen this week? I've noticed a couple of the equities we mentioned on a regular basis have perked up. I've even noticed noble resources crawling back over too. You have any...anything you have to add on any of those specific names?

Eric: Yeah, sure. Well, I think we kind of went over last week that they came out with these results of the ore sorting and the grades, and there's some thinking that between the ore sorting which allows you to only focus on the ore that has gold in it, that there might be a very economic model there. It's early days, we don't know. But if ore sorting works, I mean, it would be very, very helpful because you can see separate the wheat from the chaff pretty quickly and make it very economic. I should also point out Greg, that one of the important things is what Solar's done, either we haven't really focused much on silver. But silver is significantly outperforming gold here. And even when gold weakens often, yesterday silver had a good day, gold's not doing much today, silver's having a good day. It looks to me like things have changed in silver that maybe the whole investigation of the spoofing in silver might have changed the dynamics of what some of these commercial banks are prepared to do in the Comex silver pits. I think that's part of it. So it can rally and, of course, it takes a little amount of money to move silver because it's such a small market, it's nothing on a relative basis.

So I think that's playing out the way we might expect. One thing I haven't mentioned about the rally in the market the last two days and maybe today, although today's a little uncertain, Friday, is the portfolio rebalancing that went on. These automatic rebalancings when stocks get crushed that the rebelling[SP] says, "Well, you gotta buy stocks, you gotta sell bonds." So when we saw the big rally on Wednesday, bonds were weak, the prices yield went up. Same thing yesterday at 2:30 when they started rallying the stocks, bonds got weak. So you can see the rebalancing happening here. So that's the reason it's going up. If that is the reason, you know you're going to get back to normalcy and who knows what normalcy is these days. But normalcy seems to be a bear market. So I suspect that once rebalancing is done, it's all done...has to be done before year-end, by the way, so we get two trading sessions done, that stocks will probably sort of really restart the sort of, the pricing process that a bear market causes. So I think rebalancing has been a very short-term positive for stocks, but will not be a factor going forward here.

Craig: Yeah, it makes you wonder, we've got the last trading day of the year coming up on Monday and it'll be a holiday shortened session with New Year's Day coming up on Tuesday. And boy, I just wonder what's going to happen come Wednesday, Eric. We get the new year, we get all hands back on deck from a trading standpoint. It's going to be fascinating to see what happens. Any thoughts you have as the calendar flips from 2018 to '19 gold, as it turns out, it looks like will be almost flat on the year, which isn't bad, considering how painful it's been for most of the year, it seems, and certainly well ahead of all of the global equity indices and things like that. Just any thoughts you have as the calendar flips and we begin to look ahead to 2019?

Eric: Well, Greg, as I said, I think it's a couple...maybe it's last week or a couple of weeks ago, I mean, gold stocks have better performed the S&P by about 30% in the last three months. So if you're an institution looking at the screen and you're counting on your computer to tell you where to go, well, believe me, the computer is going to be saying gold stocks, gold stocks, gold stocks. I mean, it's just...it's so obvious. So I think we're set up pretty well for the actual metals, I think we're set up well for the stocks. As I look into 2019, of course, one of my key concerns is where's Kirkland Lake Gold here go because I'm the chairman and a large shareholder and, of course, it's been a wonderful performer last year and this year. And I guess, I should remind people that the big uncertainty is that as we announced in the last time, we increased our guide set, that we emphasized something called, we had higher than planned grades.

And that's a wonderful thing to have, by the way, higher than planned grades, particularly when your grades are almost already two ounces a ton and then something comes in bigger that, believe me, it has a meaningful influence on things. So as I look forward to '19 and what may happen to Kirkland, hopefully the number of our business own the shares. Of course, we had the impact of potentially more higher than planned grades and two, maybe we get some luck, in terms of finding another swan zone out there. So I think everything is kind of together on that front. I love lots of smaller companies that I have ownership interested in. And I kind of think big things can happen this year. I don't think we're going to have to face the wave of selling that seems to pressure everything. So as long as we have an even playing field, I think if you make careful wagers, you should do well.

Craig: I think that's good advice. It always is good advice, actually. Careful wagers, do your own due diligence. But if the metals are going to be rising with a change in Fed policy and equity market, let's call it volatility. Sure seems like a good recipe for a fun year for us. Lastly, just if everybody can stay on top of it as we anticipate an interesting 2019. Just a reminder, you can always get all of the latest information on the precious metals industry and get it sent straight to your inbox. You can sign up for our newsletter and get a chance to win a Sprott gold wafer at the same time. Hey, how can you argue with that? Just, again, visit sprottmoney.com for details. And really at this point, I think it's time to call it a wrap on the year, Eric. It is always...it's been a real pleasure all year long to visit with you each Friday. I look forward to next Friday. I think it'll be quite compelling to see what happens once the calendar flips. But for now, I wish you a Happy New Year, a safe fun holiday coming up next week. And I look forward to talking to you next Friday.

Eric: And of course, Craig, I will look forward to talking to you too. It's been a sort of an interesting year. We've had some really tough times and some great times. And somehow we seem to have come through reasonably unscathed. So, I like you, are looking forward to having a start like we did in '16 in '19 and let's get the stocks running here. And I just think everything's kind of going our way on geopolitical, on a stock market basis, on the Fed basis. So it should be a lot of fun. I'm looking forward to it.

Craig: So thanks for listening and we will talk to you again in 2019.

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