‘Chaos Reigns’ in First Week of 2020 Gold and Silver Trading Action-Weekly Wrap-Up (January 10, 2020)

Craig: Well, happy Friday from Sprott Money News and sprottmoney.com. It's Friday, January the 10th, 2020 and it's time for your weekly wrap up. I'm your host Craig Hemke and joining us from about as South of the border as anybody can get is Eric Sprott himself. Eric, good morning.

Eric: Hey, good morning, Craig. I'm down in Antarctica and I'm staring out the window and I see an island full of penguins over there and we've seen a few while we're down here. Communication's a little sporadic, but let's see what we can do.

Craig: Let's see what we can do. I mean, for crying out loud, I think it's part of the amazing world we live in these days. I could be where I am and you can be with the penguins and we'll try to record something. Hey, before we get started, it is a new year. It means we're also going to have a Chinese New Year soon, which also will impact the metals markets. You know that, but we're going to celebrate that at Sprott Money as well. It's going to be the Year of the Rat, so we will have some gold bars, some gold and silver dragon coins for you on sale. So, please stop by Sprott Money anytime and check out the deals page and you'll find all kinds of great offers there. Okay. Eric has been one heck of a week. A lot of price action and gold as war premium came in, but now the war premium's coming back out. We're still actually up from where we were when all this started back on the evening of the 2nd. What are your thoughts as you've been watching all week?

Eric: Notwithstanding the fact that I'm a little out of the action, I can still feel the chaos down here. Okay? And as I read about incident, there's some very, very odd things that I don't know the answers to. And I'm sure a lot of other people don't. But, you know, I was stunned when I read the words from President Trump saying, "Iran is standing down." That seemed like the most unlikeliest thing in the world that I could ever imagine. And as I read about what transpired then, it's come to hand that...there was another news announcement shortly after the assassination that the U.S. was pulling their troops out of Iraq. And I'm like, wow, where is this stuff coming from? Then, of course, "Oh, no, that's a mistake. We're not taking our men out of Iraq." And then I'm reading today that the second and third highest-ranking people in the military resigned.

And I'm reading today that maybe this assassination wasn't even decided by Mr. Trump, but somebody else who was forced to resign, which creates this whole, well, what? Is the deep state running things here and Trump has to roll with the punches here? Because I did...I must say, when I saw his news release announcing the assassination, I thought he looked like the most uncomfortable time I've ever seen President Trump. So, chaos reigns in that, chaos, of course, reigned in the price of gold boullion over 1,600 then coming right back down again. And the fact that you can have, I mean, it's a record short war, right? It's about half an hour long and congratulations on the shortest war ever. But I'm sure there is going to be a lot more to play out from that.

Craig: Yes. And it's important to note again, we were 1,530, before all this began back on the 2nd. And a lot of folks think that gold only rallied on a safe haven thing. No, gold was up 3% from December 20th through January the 2nd. Silver was up 8.5% from December the 9th through January the 2nd. So, they're due for a little pullback, but we're still actually up $20, maybe, since this event took place. I think that's important to note.

Eric: And I think the other thing is, you know, we've talked about this incessantly and that is that the open interest has skyrocketed here on certainly the commercial banks shorting more gold contracts into the market and even on this decline in price might be down like only a thousand contracts, something like that. So, we still have a very high record, high open interest in gold. And, of course, anybody, any commercial bank covering at these levels is losing significant amounts of money. It would appear that we still have some kind of...acquitted the issues in the repo situation. It's been very difficult for me down here to get a total handle on it. But I gather that, you know, there's been larger and larger repo auctions which sort of begs the question, well, why would they be getting higher when we've gone to the [inaudible 00:04:44] acquitted the issue. So, these auctions were pushing up into the 80s and 90s and billions per day. So, that's still unresolved and I think perhaps a big part of gold going up.

Craig: Eric, I also want to point out to you, you talk about open interest. I just want to drop the stat on you before I forget. Everyone knows that 2018 was the largest year of central bank gold purchases since 1969 and the end of the London Gold Pool. Something like 651 metric tons. Looks like 2019 will beat that at about 670 metric tons of physical demand. However, open interest rose by over 300,000 contracts. That means the banks created over a thousand metric tons of paper.

Eric: Holding it back, there's no doubt that without the commercial banks and they're selling, gold would be considerably higher. And perhaps that one day when we had the assassination when I'm sure in the commercial banks would have said, "Hey, what's the point of us shorting into this?" Because there was no purpose for it. All of a sudden you're up like $30 and $40 in like less than an hour. So, I think that's truly what can happen here if the real demand-supply equation was allowed to effect itself in the markets.

Craig: How about economically, Eric? We had the jobs report in the U.S. today, came in below expectations for what that's worth. Probably more important, the wages, the average hourly earnings is only up 1/10th of 1% that belies, you know, I mean, we're talking part-time jobs here. There really was a shortage of applicants for really good jobs, wages would be rising.

Eric: Well, it's interesting. You're absolutely right on that and that's a very weak number. I mean, imagine you're getting a 1.2% annualized wage increase. That would be horrible for everyone. But when I reflected on, you know, we had a very big number, big increase in November, now, we've got a weak increase in December, but I would suspect along the seasonal adjustments have not reacted to the fact that...because the online sales are so large, those people have to hire in November. They don't hire in December. In fact, they're starting to fire in December. So, depending on when the survey was taken, but the online guys might be letting staff go already. And, of course, the mainline retailer, he's not really adding much because his sales aren't going up at all. So, there might be some seasonal adjustments that made November look a lot better than it should have.

And, of course, December ended up looking weak and we had a pretty good uptake hit gold here and these held our own with the gain that we had this week. We have lots of data that tick off the ISM manufacturing data, which is the weakest in 10 years. That was important. The bull, I think is the weakest it's been in a long time. Truck sales are horrible. I thought one of the more interesting numbers was that The Perth Mint had sales in December, 79,000 ounces compared to the U.S. Mint's 2000. Now, there's an interesting Congress: 79 versus 2. But I think the U.S. Mint sales are always very, very, very weak when prices go up because they always are priced out of the market for some bizarre reason. So, but The Perth Mint, they were up 170% year over year. So, that tells you, I think what's really going on in the physical gold market and their silver sales were up, something like I think the number was something like 70, 80%.

Craig: While we've got a good connection, we probably ought to keep ongoing. Anything else on your mind or should we get to some of the stocks?

Eric: No, I think we should chat about some of the stocks.

Craig: I know there's was...

Eric: Maybe I'll start off here.

Craig: Yeah. Go ahead.

Eric: But I'll start up with Kirkland Lake. I mean, they reported their production was 279,000 ounces in the quarter up from 248 in the previous third quarter. It's kind of middle of the road-ish in terms of it could have been a little better. But nonetheless, the fact that you've got an extra 31,000 ounces, almost all from fossil, all because of grades. To me, that could add about 15 cents to the quarterly earnings versus the third quarter, third quarter was 84 cents. So, you might think that they could come in just under a dollar. The most interesting thing about the releases at the grades were higher than anticipated at Fosterville, which I think might suggest you could see your revision to reserves which would be very good. I saw that Newmont increased their dividend by, I think it was something like 70%. Of course, I've always hoped and expected that with the kind of results that Kirkland Lake has mentioned, yearning 99 cents, you paying 6 cents dividend. I think there's lots of room there.

I should comment about Detour [SP], because they had their report in their quarter, I think it was 159,000 ounces. It was about 22,000 ounces a quarter. Pretty good number. It's almost at 640,000 annualized rate versus the actual reporting of 600. So, I still think that that's an excellent acquisition candidate and look forward to that going forward. It's really in the hands of the Detour shareholders and we'll see I guess in a couple of weeks what happens here. Wallbridge reported some results. The actual results reported, well, one of the holes was something like 32 grams over 10 meters, which was great. There was one other hole which I think we're hoping for a better number that came in at something like 5 grams over 15 meters, I don't know the exact number. But more importantly, they announced that one of the holes they drilled that had, I think the number was 26 meters of visible gold and silver, it was 216 meters from any previous hole. And, of course, the hole with the 5 grams over 15, it was 200 meters deeper than before.

Now, you know, if we thought the last time there was a press release of the ore body was 200 by 200 meters times the width, which we don't know the width yet, and now it is 200 meters deeper, 200 meters wider, well, that's 400 by 400. That makes it 1,600 square meters. That makes it, you know, four times the size of what we thought based on previous results. So, it's getting bigger, it's getting bigger faster. They've also had a step out to the West was another 80 meters out where their visible gold, no report, this thing just keeps getting better. If that hole that's 260 meters ends up being a sort of a high-grade hole, 10 to 20 grams of where that kind of width and this thing will get very, very excited because there's lots of room to go vertically and, of course, laterally.

So, there's lots to go yet. You also want to talk about Jaguar simply because was announced that we purchased an extra 5% of Jaguar. Tocqueville came out as a seller, a week ago announced as a seller. There were over 10% owner and we thought, "Well, if they're going to sell, we'll try to buy another 5%." So, we now have, I think it was 48% of that company. Again, it's just some play on hey, price of gold gone up 100 bucks here. Hopefully, Jaguar can produce a hundred thousand ounces, an extra 10 million U.S. on that kind of market gap in terms of earnings would put it in really good shape. So, I think there's still lots of opportunities. We should never lose the fact that the gold price has acted well notwithstanding the volatility of this week, which you pointed out earlier, and to be at 1555 is like so much of an improvement over where we were as little as a month ago. So, I think all looks good on the precious metals front here.

Craig: Absolutely. I obviously agree and that gives getting lost by a lot of people that just see us being down $50 from the, you know, the ultimate scare that we had. There was hopefully a once in a lifetime event. We don't want to live through that again anytime soon. Eric, I had a couple of questions come in. One was on that Detour acquisition, if all goes well and the shareholders' vote to approve it, how long does it take for something like that to be fully blended into Kirkland's earnings and their production?

Eric: Well, of course, it's a function of how quickly things can improve. But just the fact that this quarter over the last quarter was up by 22,000 ounces to 159 from 137. I mean, these are almost free ounces when you get those, right? And it was because of grade and action to reconciliation with very positive reconciliation of what they expected to find versus what they did find was positive to, I think a net 19%. That's the easiest way in the world to find gold. You do nothing. It's like Fosterville, you know, all of a sudden they produce 50 grams instead of the expected 40 grams, you know, all of a sudden it's like manna from heaven. And that's one of the things that I think is going to happen at Detour, that the reconciliation is likely to prove that there's more gold there and better grades than might've been anticipated.

So, that's something that will just benefit the timing of Kirkland's bid, if it's just ready to manifest itself. And I think the fact that Kirkland has so much money now, I think they get like 800 million in the bank that they're going to throw some money at property. And, of course, we've seen with Walbridge's success on the same zone, about 80 miles further East and they [inaudible 00:14:31] a very high likelihood of Detour having something quite significant, deeper down. Because it wasn't until Wallbridge got down below 400 meters and really started the cavern to high grades. So, it looks good.

Craig: It does look good. And I had one company come in this week, I'm not sure if this is the one you know anything about, but they were asking about Dolly Varden. Is that anything you know about?

Eric: Well, yeah, I owned Dolly Varden. It's up in the golden triangle. I'm buying in for a silver play. Again, it's, you know, we have an exploration of kind of known areas where you're hoping that an old mine can become a new mine, which happens seemingly often in this business. And just take a little hopefully, drilling, time and good luck to prove it out. And, of course, if it proves out, you make a vast return on your investment, if it doesn't prove it out, well, then you're going to lose some money. But so far, it looks pretty good.

Craig: All right. One last thing before we go. If you recall, we talked a lot of stocks with Eric last month as Eric was our expert for the Sprott Money Ask the Expert segment. In fact, we had two segments, one that dealt with gold miners and the second one that dealt with silver miners. You can find both of them at sprottmoney.com. Click the insights tab in the navigation bar and you'll see the Ask the Expert page right there. This month, the expert will be Gerald Celente noted a trends researcher and trend forecaster. If you have any questions for Gerald, just email them to us at submissions, the word submissions@sprottmoney.com, we'll try to work them in. And, for now, it's probably best to wrap up as I think we've lost our connection to the South pole, but Eric will be back next week as well I. Should be a very interesting week. So, we look forward to speaking with you again next Friday on your next "Weekly Wrap-Up." But for now, from all of us at Sprott Money News and sprottmoney.com, thank you for listening and have a great weekend.