Bigger Prices Ahead For Gold - Weekly Wrap-Up (August 23, 2019)

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

Craig: Greetings once again from Sprott Money News and sprottmoney.com. It's Friday, August the 23rd. It's time for your Weekly Wrap-up. I'm your host, Craig Hemke. And joining us again now this week is our favorite fisherman, Eric Sprott. Eric, how are you doing today?

Sprott: Hey, Craig, good to be back. Had lots of fun fishing. But nonetheless, good to be back in civilization. I was actually north of the Arctic, as in the Arctic Islands. And it was a little bit rustic up there. Something that Eric is not that used to. But the fishing was great. So good to be back.

Craig: It's nice to have you back. Hey, and before we get started, just a reminder, sprottmoney.com is your online source for all the best deals in physical gold and silver bullion and gold storage. You can go to our website and also find great information. Sign up for the newsletter so you don't miss out on any of the blogs that are posted there. But also you might want to find the most recent Ask The Expert Interview, which I was privileged to conduct a couple days ago with David Rosenberg, who is a fantastic economist. And it was a very insightful conversation. You'll find that at sprottmoney.com as well. And if you're looking for metal again you can always pick up the phone and call us at 888-861-0775. Man, why wouldn't you be looking for metal? Eric, been an okay week. But gosh, we've had so many good weeks in a row. That's to be expected from time to time. We've had a lot of physical news this week too. I'll let you just take it from there.

Sprott: Sure. Well, you know, the first thing I say, now that you mentioned Sprott Money and buying coins and things like that, I can tell you that retail's back in the game here, baby. I can just look at what our weekly sales are like. And they are vastly different, vastly different than they were like one or two months ago, probably by a factor of 400%. So it's not just Central Banks and big investors. It's also individuals have come back into the play here. So that's great. I think the fact that, you know, the Central Banks continue to have this, I mean, you can't be more dovish than these guys are dovish. And you can't be more uncertain of what everyone's going to do as you get more and more debt that's negative-yielding. I think we're up to now 18 trillion.

And it's hard to even comprehend what people must be thinking who are running pension plans and investment funds, and so on. And you got an asset that typically is at least 50% of your portfolio that's negative-yielding. And it's been great while you can book that capital gain because yields were going down, and therefore the principal value of the paper was going up. But, my God, if you ever just stood still, imagine if you stood still for a year at whatever today's rates are. And there was no capital gain, and there was an income loss because of negative yield. What are you going to do?

I should give you an interesting anecdote. I was sitting in a meeting in the middle of this week with bankers...or I guess it was last week, with bankers discussing it's kind of a new line of credit that I might establish here. And I started chuckling a little and I said, "I guess I should explain to you why I'm chuckling." I'm just putting my head a year and a half forward imagining this meeting. And the line of questioning is, well, how much interest are you going to pay me this year to borrow that money from you?

Craig: Right?

Sprott: And what...and it's a legitimate thing that might happen. "Oh, you want me to borrow money? What are you going to pay me?" Like, what...how about reversing the roles? It's just incredible. Anyway, lots of great things going on in the physical world of gold and silver. Of course, the Russians are still at it. They bought nine tons last month. Just this morning they are ending the VAT tax on gold. Oh, my goodness. Vladimir wants the people of Russia to buy gold. And why wouldn't he? That's exactly what the people in Russia should be doing. That's what the people in the United States and Canada should be doing. Long as the gold's in the country at least you're benefiting.

In fact, the country who is going to benefit the most by the price of gold going up is India, who owns most of the gold in the world. Probably own a third of it all. And their stupid government keeps...raises the tax on it. Don't think...how stupid can you be? Mind you, central bankers can be pretty stupid. But to be that stupid, to not realize the benefit of owning the gold that your country's the biggest winner on the face of the earth, and you want to tax it more? Oh, my God. It's just dumbfounding.

What else do you want to...let's talk about the COT reports, the Commitment of Traders reports. For two weeks in a row, the outstanding short interest of the commercials has gone down. It's gone down by 20,000 contracts. That's what, 100 million ounces less short position. They lost money on the trade. They don't normally lose money on the trade. So I find that quite encouraging. On the other hand, the short interest in gold keeps going up and is almost at record territories, if not at record territories. So in a sense, from a COT perspective, it's a bearish view. And certainly, from silver, it's a neutral view of the COT report. So everything seems to be well on the physical front in terms of gold and silver.

Craig: Getting back to the physical too. You know, you mentioned U.S. and Canadians buying physical. So few people do, Eric, why is that, do you think? Are they conditioned to not look at it as money? Is it a thing where maybe these negative interest rates will help change some minds? What do you think is the biggest hindrance?

Sprott: Well, I think most investment advisors who are not independent work for banks. Gold is like evil to banks. And I'll tell you why it's evil, because it takes money out of the banking system. You know when a guy buys a physical bar of gold, now you can't lever it in a bank, right? They're just taking deposits out of the bank and putting it into gold. So, most advisors have always had a great disdain for gold. And I think what has to happen is, you know, after a while, and we're well past that while, the while being gold's up, whatever, it's up 40% from its low here since 2016, 40% from its low? And it's up to something, what is it, like 27%, or is it 20 something percent this year. People finally catch on, "Hey, I'm missing the mark here."

And gold and gold stocks being the number one performing group of stocks, as I've said a million times, the computers get it. They're just spitting it out every day. Gold stocks, gold stocks, gold, silver, silver stocks. Sooner or later they're almost forced to come around. So I think we're seeing that now. I've actually heard mention of some advisors at some of the banks telling people that maybe they should be looking at gold investments or precious metal stocks. So I think you just have to wear it down. And you know it's funny when you go back to 2000 to 2011 to think that gold stocks are up 1700%. Well, the market did nothing, nothing. So, you know, you can get these monumental outsized performances when things turn well.

I'll just give you a personal anecdote. I happen to own 80% of a mine in Nevada that's hardly ever made money. And I'm sitting there thinking, "Geez, these guys produce 150,000 ounces a year. The price of gold's up $300, that's $45 million extra revenue. And we were breakeven." I mean, think of going from breaking even to making $45 million a year, and put a multiple on it. Oh, my God. Oh, my God. How dramatic is that change? You know, the stocks can't react fast enough for some of these guys, where their earnings have already doubled and tripled and quadrupled because of the price change, but the stock hasn't. So we got...more good things will happen in the stocks going forward, in my view. And that's presuming that gold stays at $1500. I don't think it's staying at $1500 for one moment. We're going to see much bigger prices for gold and silver this year in my view, and next year, and maybe for quite a few years.

Craig: I think you're right too. And now, you know, your friend Rick Rule mentioned that last week. If anybody missed the weekly wrap-up last week, Rick subbed in for Eric while he was up in the Arctic Circle fishing. And he pointed out that over the last 40 years the amount of investable assets individuals, institutions that have been focused on the precious metals has ranged from the current low of one-half of 1%, up to 8% in 1980. With the median being 2.5%. My goodness, Eric, if we just go back to the median, how much money that is.

Sprott: Yes. Oh, it'd be staggering. It would be staggering for sure. And you can't do it. I mean, you can't do it without the prices change. There's nothing to buy, right? I mean, it has to be a price change. The amount of gold that goes into the system every year increases by about 1.5%, 1.5%. So if we're at x, we're going to be at 101.5x at the end of this year. So how do you go from 0.5% to something substantially larger then? The price has to change.

Craig: Exactly. Eric, let's wrap up this week as we usually do. Do you have a few updates? Anything you want to mention on some of the stocks you follow? Then I'll have a couple questions for you.

Sprott: Yeah, sure. Well, first of all, Wallbridge came out and announced that they're stepping up the drilling campaign. I think they're going to have five drills up there now. I know that they had a tour yesterday up to their Fenelon property. I've had a preliminary on it. And everything looks great. I mean, I think, you know, they obviously are stepping it up because they have great expectations to find large amounts of gold. So that's all very encouraging.

A company called Amex came out with some pretty interesting drill results just the other day there in...also in the Abitibi region. They're a very small company. But it's starting to shape up. People should maybe take a look at those news releases and draw their own conclusions. Things are still busy in the Golden Triangle where TUDOR, and Teuton, and American Creek, and Brixton are all actively drilling. And, you know, we're looking for bigs here. We're looking for guys to find 10 million to 20 million ounces. So fingers crossed up there. Are there any particular questions you have and any companies that the listeners might have sent in?

Craig: I do. And I should mention, we get a list every week. And it's really fun, right? Because we have so many...I mean, we had over 100,000 listeners last week or the week before. So we get a lot of requests for individual names. I should mention to all the listeners that I take that list. And just to save time I run the names past Eric, to begin with. And if he does not know anything about the company, you know, just not familiar with it then we kind of try to save time by not asking about it. So if your name that you send in doesn't appear here in the show, it's not that we just ignored you. Just assume that that's one Eric doesn't know much about. But some of the names on the list this week, Eric, I'll hit you just with a couple of them at a time. How about New Gold or Harte?

Sprott: Yeah, I've probably looked at each of them. But I'm not intimate with them. So my opinion wouldn't be valuable.

Craig: Okay, see, there you go. See how that works. Okay, how about Klondike? Is that one that you've owned in the past?

Sprott: Well, yeah. Well, Klondike I own. And I might actually own a material amount of that. They're up in the Yukon. They've announced some recent results. It's still very early to suggest the significance of what they found. But the drilling has been quite encouraging. And hopefully, in time, they'll prove up a big resource. You know, we've never really found the source of the Klondike Gold that was all found in the rivers and streams. But we don't know where the mother lode was. And that's kind of what they're looking for. Fingers crossed on that one.

Craig: You've mentioned in the last couple of weeks about looking for opportunities in silver. They're so few out there.

Sprott: Yes.

Craig: How about a couple of names that I hadn't heard before? IMPACT Silver or a company out of Australia called Silver Mines?

Sprott: Yeah. Well, I own IMPACT Silver. I own a very small position. I think I took a small piece of a recent issue. And really all...I don't know it intimately because it's such a small position. I mean, literally, why do I buy these things? Because they just look cheap on the surface, you know. They say they have whatever number of millions of ounces the market cap of this, and I have this great expectation for silver. Fine, I want to own it because I want to own. There's hardly a silver stock that I don't own, with the exception of Silver Mines in Australia, which I don't own. I had looked at it. And I don't remember the details of why I might have passed on it. But it might have had to do with the valuation in terms of the market cap versus the ounces, or the fact that it's in Australia. I don't really understand what's happening down there. But again, all these silver stocks I think are going to do incredibly well. With the kind of targets that we're looking at in silver here which I'm sure hoping will go through its old high of $50. So it will be an incredible place to have some money.

Craig: Here's a question just about benchmarks. You know, a lot of folks look at the GDX or the HUI index and use that as a gauge as to how the shares are doing. Do you have I guess your own mental benchmarks, Eric? Do you think, okay, at $1600 gold when we get there, I'd expect the GDX to be, you know, a certain value, and so on and so forth?

Sprott: Well, I don't. But I would say this, I mean, you've mentioned $1600. I mean, let's say the average guy's cost all in was like $1100. So he was making $200 at $1300. Now it's $1600. Now he's making $500. He's making 150% more. And things are going our way, would I expect the stocks will be up 200%? Yes, I would, because it was so beaten down before. So it's that simple. And of course the more high cost they were, such as for example Detour, things of that ilk, I mean, the more they're going to go up because their profits are going up by 300% and 400% and 500%. So yeah, I mean, it's not that...it's a very simple thing. You go and find out what the guy's cost of producing the metal, if he's breaking even and the price of gold was $1300 in the last quarter and he breaks even, you know that he's making $200 more. Well, we just multiply the number of ounces times $200 and figure what the earnings per share are going to be. And you know, put whatever multiple you think is appropriate on, you'll know exactly what the stock should trade at.

Craig: Eric, let's end with this. I know you've only been back in civilization for a few days. But perhaps you saw the news of another convicted trader from JP Morgan, for manipulating, spoofing price. Let's just end there. What do you make of that news this week?

Sprott: More of the same. It was a great article. Actually, Ted Butler wrote a great article. He basically said, he said that JP Morgan's just a factory for crooks, right? I mean, these guys are trained how to spoof the market. That's what...they go there, they were trained and they got hired, they're told, "Here's how you spoof the market." And now we've got two JP Morgan convictions. And who knows, I mean, if they got 10 silver traders then we might get 10 convictions. So it's just part of the unfortunate history of silver manipulation and gold manipulation for that matter. And we all know that was happening. And of course, the bigger picture is, you know, how much was the macro manipulation of gold and silver? Which I'm absolutely convinced, I mean, I just saw what happened when it crashed the last time and it was just so orchestrated by the big banks. And it was sickening. And hopefully this time, you know, people will... There's enough buying around that they won't be able to mess around with the pretend markets in the COMEX. That's what we're hoping for.

Craig: Well, it's great to have you back, my friend. Later on today we are going to have this speech by Chairman Powell at Jackson Hall. So we'll see how that impacts gold and silver and where we finish up the week. But we'll get back together next week. And we'll talk about that I suppose.

Sprott: One thing you know, it's going to be crazy. You know the commercials would love to slam gold here and silver. They love to. So, oh my God, if he comes out with a word, you know, in mid-cycle again, look out. It's going to be bad.

Craig: It's going to be a volatile day.

Sprott: Hopefully, it's a little more dovish than that. And we can just carry on here as we have done since the bottom and 16. So fingers crossed.

Craig: Well, we'll try to navigate through this day and next week. And then, Eric, we'll get back together next Friday. Until then I hope you have a great weekend.

Sprott: Okay, Craig. All the best. Good to be back.

Craig: And from all of us here at Sprott Money News and sprottmoney.com. Thank you for listening. Have a great weekend.