“Blessed With Stupidity.” Why Gold is Poised for a Dynamic Five Years - Weekly Wrap-Up (July 12, 2019)

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Craig: Well, greetings once again from Sprott Money News and sprottmoney.com. It's Friday, July the 12th, 2019 and this is your Weekly Wrap Up. As usual, I'm your host, Craig Hemke, and as usual, joining me is Eric Sprott himself, Eric, good morning.

Eric: Good morning. I'm sort of sitting here with a little byline and I think the byline I'm going to have for this week is, "We're Blessed With Stupidity."

Craig: Ooh, I like that. Okay.

Eric: Where do you think that'll take us?

Craig: Yeah, I like it. Well, let's get right into it. Before we start, of course, we got to remind everybody that as long as prices stay down particularly in silver, that means you should be adding some even if that means your dollar cost averaging, to your average price. sprottmoney.com is the place you want to do that and the Sprott Super Summer Sale continues through the month of July. Go to sprottmoney.com, check out the website, go to the deals tab, and you will find all kinds of deals there and also all the information on the Super Summer Sale. Again, sprottmoney.com or 888-861-0775. Eric, lay it on me, I like the theme of this call. What do you have for us?

Eric: Well, I mean, I'm more referring to the central bankers. And when I listened to what Mr. Draghi had to say the minutes of their last meeting came out. I mean, I'm just...I'm stunned in a way that, you know, here we put up with central bank's saying, "Well, we're going to print money, we're going to go to zero interest rates, and it will be the antidote to everything, we'll have wonderful economies." And here we are, we don't have a wonderful economy. I'm thinking of Europe in particular here. We don't have a wonderful economy, we got negative interest rates. And what does Mr. Draghi say? "Well, we're going to cut rates, we're going to print more money." Well, you know, it didn't work the last time, why do you think that it's going to work this time?

Isn't that sort of the definition of stupidity? Insanity almost, you know, repeating the same thing and think it's going to work. And of course, it looks like we have the same kind of thesis working at the Fed, where it seems more and more obvious that we're really trying to support the banking system in the stock market, I believe, okay? And therefore, everything we do ends up being stupid for the economy. And, you know, it's going to lead to a great fall one day when, you know, you can...I don't even know what happens when interest rates go deeper in Europe. I mean, they're already, what, mine is point four for a German bond. And how long the people sit there and, and own credit assets with a negative return? You know they're going to think about buying something tangible, whether it's gold or wine or something that would hold its value rather than lose money.

So, we're kind of blessed by the stupidity, and we have this looming thing that might be happening where, from the U.S. perspective, they think they're in a currency war, which President Trump is suggesting, you know, we should maybe even get involved in the markets to take the dollar down a little. I noticed that Judy Shelton, the new nominee for the Fed, who was a gold supporter but one of her thoughts was...she was asked whether she would favor cutting rates, she said, "Yes, we have to cut rates," because everyone else's cutting rates, and we don't want our currency to be too strong. So, this is kind of getting a little pervasive here that everyone's trying to get their currency weak. And of course, you know, with all weak currencies, that stupidity will lead to higher gold prices. So, I think we're in pretty good shape from the people running the money machines perspective.

Craig: Yeah, and prices held in there so well, after being contained below 1350 for six years. You know, we broke out almost a month ago, and have spent the better part of the last month above 1400. Without a really serious pullback. Do you find that interesting as well?

Eric: Well, I do and the pullbacks. I mean, there's some...like I couldn't believe the pullback yesterday when they said, well, inflation was up point one, which is higher than the point zero they expected and so they hammered gold. I mean, I've just never seen anything so preposterous in my life, okay? You're telling me that 1.2% inflation is suggesting that the Fed won't cut? Come on. And of course, it's the commercials trying to ramp it down. And normally, what we're finding is it's fine that they ramp it down, you know, take it down 10 bucks, and then slowly, but surely, it kind of winds its way back up there. And of course, with every comment by a central banker, they all seem to be pro-gold. And even when you get the politicians involved, President Trump, that's pro-gold. So, we had a lot things that should work and I think when you think about the tsunami that's happening in negative interest rates, it's going to lead to very high gold price.

I think this is just the start here. You know, we can have targets much, much higher than here. And the opportunities that are going to present themselves, that are presenting themselves amongst the mining shares and owning the metal products are quite stunning. So, you don't want to be missing it.

Craig: Just a couple of other fundamental factors, because so much of the focus is on the Fed and the ECB and all of that jazz. But Eric, how about the news out of Poland this week about all of the gold. They're buying the funds that are flowing into gold ETFs and then yesterday, we just got numbers about the U.S. budget deficit on pace to go well over a trillion dollars in this fiscal year that'll wrap up at the end of September. Just any thoughts on other factors that you're seeing?

Eric: Sure. Well, I think the Polish thing was incredible. I mean, out of nowhere, they say, "Oh, yeah, by the way, we bought 100 tons in the first half of this year." You know, 100 tons is not a little bit of gold. That's probably more than the Russians bought in the first half of the year, at 15 tons a month, which is 90 tons in six months, and the Polish people bought 100 times. And they announced they also had purchased some late in '18 that they hadn't reported yet. And the fact that these new central banks keep coming into the gold market, the India last year, Poland, Hungary, Kyrgyzstan, Kazakhstan, Russia, China. You know what? There's a message there. There's a message there that they prefer hard currencies to fiat currencies. And once we, the public get on board here, and the institutions and so on, and they...even the institutions are...I think we bought 127 tons in the ETFs in the month of June.

You know there's only about 200 tons of mined in the free world per month. So, you can't sustain 127 tons in ETFs and think you're not going to have a shortage, and that the price is going to stay here. And the only reason the price could possibly stay here because the shorts, the commercial shorts just keep increasing their short position, which is what they've done. And it's a question now whether they're going to be overrun by the physical buying. And every time you hear, you know, any comment from some monetary authority, it just leads to the same conclusion, you got to own precious metals.

Craig: Yeah. You know, what I see on my side, if these countries are taking their dollar reserves and buying physical metal with it, especially gold, shouldn't every individual person with dollar reserves or any fiat currency reserves be doing the same?

Eric: Right. And imagine if Poland instead of buying gold had bought silver.

Craig: Oh, my gosh.

Eric: That would have turned the silver market right on its head, that one purchase, okay? One buy order over...one by order and it's over.

Craig: Ain't it funny to think too, they bought 100 metric tons in London. So, you know that that just means they shuffled some money, or some gold pallets back and forth across the blue line in the vault. But now Poland says they want that gold, that ought to be an adventure too.

Eric: I think I'd like to actually see the gold this time. That's another element that's happened in the last few years. In fact, when I think about central banks, I think they used to sell something like 600 tons a year about seven, eight years ago, now they're buying 600 tons. Think about the dynamics of that. A 1,200-ton a year change in a 4,000 turn a year market, 1,200. They're buying 30% of all the gold, 30% more than they were 10 years ago. How can the gold price not go up? Wow.

Craig: All part of the alchemic magic, let's call it that, of the bankers. Eric, I do want to... Before we get to some of the miners this week, I do want to get your opinion where a lot of folks are noticing Bitcoin has been rallying. Not so much maybe what they call the altcoins, the smaller ones, but Bitcoin's been going up and then getting smashed back and then going up again. There's been a big campaign out there about they call it drop gold, I guess urging millennials maybe to go in the direction of Bitcoin rather than gold as they go through life. It's an interesting idea, I guess, but I would sure think there's room for both. What are your thoughts on Bitcoin versus gold?

Eric: Well, you know, it's tough enough on millennials already, right? But to give them that kind of advice, that's just adding insult to injury, okay? And I hope they don't follow it, by the way. I mean, my view on Bitcoin is that it's not a real thing. God forbid you lose your code, and you can't get the stuff and there's no way of getting access to it. But I just don't believe in it, I don't believe that something up in the cloud or digital or whatever has value. I don't know how well it's been accepted in stores or whether...I've heard it takes a long time to even do a transaction for goodness sake. So, look, luckily, I'm not a millennial and so I don't have to follow that advice and I never will. And I would certainly urge others not to. I think the story of gold could be very, very dynamic here for the next five years, and will make an impression every bit is equal to the rise in Bitcoin. But you know what? When you finally say you want to get out, you can touch it and own it and feel it and you're in control of the whole thing. So, I don't think anybody should be dropping gold here, in fact, totally the opposite.

Craig: Yeah. All right, lastly, Eric, let's talk about a couple of stocks that we often discuss on these Weekly Wrap Up programs, the earnings release and some news out of Kirkland Lake this week and I know you want to touch on the Wallbridge as well.

Eric: Yeah, well, first of all, I said at least a couple of times I'm looking for silver plays, okay? And I am. And I don't have anything to report yet but, you know, I'm hot on the trail here. And I think silver will just explode one day. You know, Poland comes in and puts 30 billion into silver, excuse me, that's 2 billion ounces, that's over. Anybody could do it, maybe the Bank of Mexico, that's the big silver producer would step in and buy something like that, which is not even a lot of money, by the way. So, I think silver is going to explode here, we have a very strange setup in the Commitment of Traders that they're short, like a billion one ounces or so. I'm looking for something, I don't have any report on that. In terms of Kirkland report of their quarter, it was probably a little disappointing for sure that the production out of the Macassa Mine went from I think it was 77,000 ounces last quarter to 49,000 ounces this quarter.

It was suggested that they had some water issues in the mine because of the significant rains that happened up there and that it affected one of their loading pockets. They have suggested that the production should be normal moving into the third and fourth quarter. And of course, Fosterville did incredibly well and we could be moving into some serious production improvements in Fosterville in these third and fourth quarter, which is what the company stated all along. And it's just a matter of moving into, you know, you go from 20 gram to 40 gram or you double your production and go from 40 to 60. It goes up by 50%. So, we know the gold's there, we know the grade of the gold, it's just a matter of getting into it and they suggested that they'll be getting to it these two quarters, so that should be quite exciting.

In the case of Wallbridge, they brought out another exploration result, I always find their exploration releases, they take a lot of work because there are a lot of pictures to go through and trying to understand what's really happening there. And of course, it's great. It's complicated because it keeps getting bigger and more complicated. And by more complicated, I mean, for example, they used to have a strike of these zones was sort of northwest-southeast, now we got zones that are almost going west to east, a whole set of new zones, that they're saying control the high grade. And I'm looking at some of the potential intersections that they have on these zones that strike in the new direction, and there's a lot of visible gold showing on the figures that they have there, and these are all holes that haven't been reported. And as you look at these holes that haven't been reported, you're looking at where they're showing they have the visible gold.

There could be some stunning news releases. One of those holes they said was 940 meters, almost totally endowed with gold mineralization. They didn't say the grade, we don't know the grade, but that is like incredibly long. And we have those holes to wait for. I would encourage people to look at the news release, look at the diagram of the coverage of the holes and the areas that it goes over. I mean, we could be talking about a very, very large resource here. So, I'm still very keen on it, I'm very much looking forward to some of these holes coming out where we know they have visible gold but we don't have the results yet. So, it all looks good on that front, they even said they had a new sed... They got gold in sediment, which is brand new. They said that they found gold in the gabbro down in 600 meters, which is new. Like, it's just... Pretty well everything is kind of confirming major development here in this particular deposit.

Craig: That's exciting.That's very exciting. And Eric, somebody asked me this week, when a Canadian mining company sells its metal, do they sell it in dollars, do they sell it in Canadian dollars, can they pick? How does that work?

Eric: Yeah, well, of course, they can choose. Probably most big companies would sell it in the U.S. dollars because they report in U.S. dollars. So, for example, Kirkland Lake reports in U.S. dollars. So, you know, unless you needed some for Canadian pay and stuff like that, you'd probably take U.S. dollars, because you don't want to have to trade your dollars back and forth all the time because of the cost of trading. So, most of the big companies would take it in U.S. I would say a smaller company that didn't have U.S. obligations, who was reporting in Canadian dollars would probably just keep it in Canadian dollars, but it's entirely up to them. But most of big guys report in U.S. now so they would do sell in U.S. dollars.

Craig: That makes a lot of sense. Hey, before we go, I just want to remind everybody that a monthly feature we have at Sprott Money is our "Ask the Experts" series. This month's segment will be recorded next weekend and it'll be with former Fed official, Danielle DiMartino Booth. Thanks to everybody, that's all the Sprott Money customers, everybody online that has already sent in questions this month, but there's still time to do it. You can just tweet questions at us, you can email us questions if you have it. Again, for Danielle DiMartino Booth, we're going to record that next week and we'll try to answer as many of your questions as possible. Eric, hopefully, we can answer some questions over the next couple of weeks as well. It's going to be an interesting run up to this next Fed meeting. And it's going to be a very interesting remainder of the month and remainder of the year.

Eric: It should be fun. I should probably warn all our listeners that I may go and buy all this Sprott Money silver before they get a chance.

Craig: Yeah, exactly. Temporarily out of stock is what it'll say.

Eric: You got it. You can blame me.

Craig: All right, my friend. Thank you for your time this morning. I hope you have a great weekend.

Eric: Okay, you have a good one too, Craig.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thanks for listening, have a great weekend, and we'll talk to you next Friday.