Weekly Wrap Up

“Bring it on..” - Eric Sprott on the FOMC rate hike - (Weekly Wrap-Up, June 8, 2018)

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June 8, 2018

Another week behind us, and Eric Sprott returns from the field to help us interpret it. In this edition of the wrap-up, you’ll hear:

The macro-fundamentals moving people towards gold

What you should pay attention to in the mining sector (hint: it’s not the news releases)

Plus: Eric’s predictions for a volatile week ahead

“My first thought is: OK, bring it on, baby! Let’s have that rate increase. Let’s get it over with, here. Because, typically, I don’t think the Fed really could possibly read things as bullish as they might have started the year off thinking. Because it’s really not quite coming together. Housing’s weak, auto’s week, retail sales are nothing special, you’ve got inflation affecting lots of areas… We have lots of reason for the Fed to be expressing concern. So, fine… Let’s bring it on, let’s see what happens. And I’m pretty certain that gold and silver will survive yet another rate increase. And prosper, quite frankly.”

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

Well, greetings once again to everyone from Sprott Money News and sprottmoney.com. It's Friday, June 8th and this is your "Weekly Wrap-Up." I'm your host Craig Hemke. And joining us, once again, this week is Eric Sprott himself. Eric, good morning.

Eric: Hey Craig, good to be back. Not really much going on in the markets here. A little bit of strength in silver, but certainly individual things going on the macro level for the whole world's financial markets is changing quite quickly.

Craig: It certainly is. And before we get started Eric, I actually have some interesting and good news for you. You and I talked a little bit about Bitcoin and the cryptocurrencies from time to time.

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Eric: You know Craig, it's probably one of the greatest trades ever.

: Yeah, hardly go wrong with that one. Well, it's been a very good week actually. Sideways-ish in the metals but gold, as we speak this morning, is about 1303, up $8 on the week. And silver is the big winner, charging up through its 50-day moving average, actually tapping its 200-day yesterday, and up about 2% on the week as we type. What do you make of the week so far?

Eric: Well, as you say, it's been constructive. And of course, we had the gold June options expiry, which I think dominated everything, quite frankly. There's so much of...well there was so much open interest that they had to get the price down below 1300 so that nobody would claim any physical gold.

I have been quite surprised by what is going on. It's very difficult to understand, particularly with all the exchange from physical issuance, which are in numbers that defy any sense of logic. So I can't honestly know how anyone would understand those markets. I mean these exchange from physical just go off into oblivion somewhere.

But there's been some exciting things happen from a physical perspective. We have had the Chinese demand. So far, this year's up to something like a little over 9%, which is almost 200 tons, which is quite significant in a mining market that's less than 3,000 tons have one country buying an extra 200.

We had a Swiss pension fund recently decide that they're gonna go from swaps in gold that they owned to physical bars in gold that they owned. Why they wouldn't have done that long ago is beyond me, but that can add 20 tons of buying. On a lesser note, I see that the U.S., sorry the Texas Gold Depository is opened. Hopefully, that might allow or cause some people to consider getting into gold.

And of course, we've had...like the trading in silver and gold on the Comex is so massive, I mean I just can hardly believe that I have to read that. We trade the world's silver production every day and the world's gold production every day. Just it boggles the mind to imagine who is doing what to whom here.

But anyway, it happens every day and that's why it's particularly difficult to look at the data and try to come up with some conclusion because the data is so overwhelmingly, in my mind, bullish for the precious metals.

: Yeah, you mentioned silver we're up over 220,000 contracts of COMEX Open Interest again, that's 1.1 billion ounces. And for the first time, there's half as many silver contracts as there are gold. Gold Open Interest is at a multi-month low.

Like I just...it's mind-boggling and then to look at the number of ounces that they've exchanged for physicals that happen every month, seems to me it averages like 500 million ounces a month, something like that. Theoretically it's going to be settled over in Europe, which of course couldn't possibly be settled but anyway, that's what they say is going on.

So the data seems encouraging and we haven't even talked about sort of the macro fundamentals going on in the world that might also cause people to go to gold. And for some of those things, like for example, if you're Brazilian and your currency is falling 5% in a week, maybe you'd be better off owning gold. Turkey, Italy, the way of things going on there that are becoming potentially upsetting for all of Europe. We saw German factory orders were down 2.5% in April. More and more experts out there are suggesting there's this world economy slowing down, which of course would cause rates to not be continually pushed up.

: Eric, let's begin to look ahead. A lot of times we look backward with the Weekly Wrap-Up. I guess by definition, that's what we're supposed to do, but I think this week it would be more fun to look ahead because next week looks to be such an interesting and volatile week.

We've got the June FOMC meeting hot on its heels. We're gonna have the ECB. They've said that they're gonna have a live meeting, whatever that means for them. Bank of Japan will meet next week. We've got all the inflation numbers here in the U.S., and of course, we've got the long-awaited Trump-Kim summit next week as well. It looks to be a volatile week ahead. Doesn't it?

Eric: Uh-huh and I might even add the G7 meeting this weekend.


Eric: And there could be some fireworks coming out of that. But it's interesting that you started off with the Fed meeting. My first thought, "Okay, bring it on baby." You know? Like, "Let's have that rate increase. Let's get it over with here," because typically, I don't think the Fed really is as nearly as...could possibly read things as bullish as they might have started the year off thinking because it's really not quite coming together how things [Inaudible 00:06:35] all those weeks reach out sales are nothing special.

You've got inflation affecting lots of areas. Of course, the full Flyover America thing is, the consumer is getting squeezed, the debt keeps going up. And we have lots of reasons for the Fed to be expressing concern. So fine, put the rate increase. Let's see what the language is going forward here and maybe it will open things up for the arguments against gold and silver, which I think are baloney anyway but they're made.

And so we got to deal with the precious metals markets trading 100% of their yearly supply every day, based on sort of false premises, but let's bring it on. Let's see what happens and I'm pretty certain that gold and silver will survive yet another rate increase and prosper, quite frankly.

Craig: Yeah, we've had five out of the previous six Fed funds rate hikes. Gold has rallied anywhere from 10% to 30% and the stage seems to be set for it to do it again. So yeah, I'm with you. Let's get it on. I do want to ask you though too, since you were out last week and I had this mental image in my mind, you were out checking out some mining properties and things like that. Do you carry like a nap sack and like a pick over your shoulder Eric, is it what...? Okay.

Well, I spend a lot of time in helicopters. In fact, I was out in Northwestern BC and I was trying to visit a company called Garibaldi, who is drilling up at whatever, 6600 feet or something.

Craig: Oh my.

And unfortunately, the weather was such that we couldn't get the helicopter up to where the drilling was to take place. So we just had a chat rather than me looking at some drill poking in of the ground and really not understanding what's happening, but yeah, everything looks good there.

We've had some announcements from NOVO on their box samples down in West Australia. The market didn't take kindly to it. I would suggest to our listeners that care about NOVO, make sure you listen to the interviews. There was a Jay Taylor interview. There was a Red Cloud interview.

Normally, if you go to one of the chat lines, people will mark those interviews, and they should be listened to because I think quite frankly, there's some great, great news that's available from those interviews, particularly on the NOVO and new conglomerate zones and perhaps higher grade zones, and how it looks like it's basin-wide, basin-wide. I mean my god, the size of this thing is 200 km by 100 km.

They don't even guesstimate for one second how much gold could be in it because it would just be incredible. But it certainly looks like it's manifesting itself. And again, I'm not giving anybody any investment advice, but you can go to these chat lines and study these things. So from my point of view, looks pretty good.

Craig: Yeah, you're right and Dr. Hennigh's been doing a lot of those interviews and that's probably hear it straight from the horse's mouth rather than try to pick it up from someplace else, right?

: Well, I find it interesting that news release is such a stayed document.


Eric: And then there's an interview and you kind of get to have a pretty little narrative around thing. And I think that the interviews tend to be more informative than the news releases. And what the beauty of the internet and everyone reproducing everything and it's right there for everyone to see, it certainly makes doing analysis and staying up on things currently, a lot easier and a lot more informative than reading a news release.

Yeah. Hey Eric, and just one aside. I had somebody write in this week and wanted me to ask you about a company called Excellon Resources, which is a silver producer down in Mexico I think, if that's right. If there's any insight you can provide there because I think that's a company you're familiar with.

Eric: Well, I'm a big owner. I'm an over 20% owner. As you know, I'm a great believer in silver. I do believe it's the highest grade silver mine of any public company. It's well over 1000 grams equivalent to ton. And what intrigued me was they used to have a mine that had all sorts of water flowing into it and you'd be pumping it out and you'd always kind of be behind a step or two.

And they finally decided to drill a whole bunch of wells around the outside of it and just suck the water out before it got to the mine, which they have now done and it's changed the mining circumstances a lot. And they are suggesting that we can double our output and halve our cost. They're not there yet, but I think they're on their way and that will, I think, change the economics of what they should be able to report once they get to steady-state mine production. And two, they're drilling and I think they reported some results a couple of weeks back. In fact, I think there was some hole that they had over 2,000 silver-equivalent grams per ton over decent widths.

So it's a very high-grade property. Grade is king. Grade is profit. And so I'm hoping that when the new dry mining conditions manifest themselves totally that the company will prove to be undervalued.

Craig: Interesting. Interesting stuff. Well, I tell you what Eric, it's going to be an interesting week, no doubt about that. You've touched on the high points. Again, watching the G7 over the weekend and then all those central bank moves next weeks, perhaps it will set us up maybe for a little bit of a summer rally.

Eric: Maybe. Maybe by the time the weekend's over, we'll go over from G7 to G6.

Craig: I like it. That's...it could be the headline. Hey listen, one last thing too my friend, didn't it seem like it was just Mother's Day? Oh gosh, and now all of a sudden Father's Day is just around the corner.

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Eric: I like it.

Craig: Yeah, I added my own adjective. Did you notice that? That was not in the...what they sent me the word freaking, but I just thought that's 100 ounces for 55 cents over spot, you can't get it out of the ground and then process it for that. That's remarkable.

So buy one of these babies for dad. They have been moving fast obviously and limited quantities are available. So visit us. It's sprottmoney.com or call (888) 861-0775 for more info. Eric, thank you. Glad to have you back and I hope we have a lot of fun stuff to talk about by next Friday.

Eric: We will for sure. So you have a great weekend and we'll chat next Friday.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening. We'll talk to you again next week.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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