“Don’t believe the statistics.” - Eric Sprott on the metrics that matter- Weekly Wrap Up (August 31, 2018)

Transcript:

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

Craig: Well, greetings once again. From Sprott Money News and SprottMoney.com, its Friday, August 31st, what might be the last day of summer. And this is your Weekly Wrap-Up. I'm your host, Craig Hemke, and joining us is Eric Sprott. Eric, good morning.

Eric: Hey Craig, good to be here. You know, one of the things with the gold business, you're always happy when any month ends because we have options expiring and all sorts of weird things that happen at the month end. So, we're always looking forward to the beginning of the month rather than the end of the month.

Craig: No, that's for sure. And, we always like to get it behind us. And it is kind of again, the end of summer, we've got a three day holiday weekend coming up here in the U.S. And that often means the end of summer. And so with that in mind, the folks at Sprott Money have an exciting announcement. Our end of summer sale is on. Everybody always looks forward to this every year. Sprott Money is offering great deals all weekend long on some very special products. Click on the details tab at sprottmoney.com or just simply call us, 888-861-0775 for more details.

And the deals just keep getting better. Prices are actually flat to down this week, Eric, at levels that we haven't seen for over a year. And, if there's ever a time to be stacking it's now. How do you feel about what, I guess, where we stand here at the end of the summer?

Eric: Well, I think things are shaping up. It was interesting after our call on Friday, the gold price really rocking it up. I think, because Governor Bullard suggested that maybe we don't need any more rate hikes and the Chinese came in to support the Chinese which you reap a lot of the relationships between the Chinese currency and the price of gold. And I would say that there's a... When you look at sort of the macro things that seem to be going on in the financial world, there's a lot of reason to think that more and more people should be thinking about gold.

And I would just lead off with the currencies, emerging market currencies that are all getting hammered here, and as I reflected on, 94% of the world's population is seeing their currencies decline. India, Indonesia, I mean we've had huge declines in these currencies and these people typically are gold friendly people. So, I would think that there's going to be some extra buying of gold and hear some people trying to protect against currency debasement.

Craig: Really, not just physical gold, Eric. The way that the global banks, particularly the EU banks own these emerging market countries debt, you get that kind of daisy chain effect. If even just one of these countries begins to melt down and have a liquidity crisis, that could spill over into market weakness like it did back in the summer of 2015, and then we might get people actually looking to buy digital gold exposure on the COMEX too.

Eric: Absolutely. Well, you know, just see all the economist, whenever they see a currency weakening, they automatically suggests that, you know, the Central Bank has to raise the rates. And I think it was Argentina, where they raised their rates to 60%, something like that. You know, its fine for an economist to sit there and say, ''Well, that will help the currency. '' Well, let's just put ourselves with a guy who's living in the country that has a business and now all of a sudden his banker says, ''Well, we want you to pay 60% on your loan. '' That can't last too long. Right?

It's such a prohibitive cost that things happen negatively in that economy and you can bring on that liquidity crisis. So, we'll have to stand by that we have a lot of countries where they are using that technique of raising rates. And, I just don't know what happened in those countries, and it's hard for me to imagine that things stay normal when they got a 60% Central Bank rate.

Craig: Yeah. And at the root of this, Eric, is the dollar rally that caught a lot of us by surprise back in April and May and the dollar index rallied about 6% or 7% in six weeks. So at least it's been stable ever since. What do you make of the dollar? We're going to probably get another rate hike here in two weeks, but there are a lot of other crosscurrents out there. Do you think we see more dollar strength? Does this emerging market thing kind of feed on itself and make the dollar go even higher? Or what is your forecast there?

Eric: Well, you know, I think when Jerome Powell spoke at Jackson Hole, he's kind of left it open that, you know, the Fed could go either way. I.E., we're going to keep looking at the data here and if the data doesn't confirm then we're not going to go ahead with things. Now, I think they will do the September rate increase because theoretically, things are strong and so, they believe they're strong, GDP came in at 4.2% in the second quarter. Not that we necessarily believe it. Consumer comfort with strong, so they probably have a basis for increasing.

But, you know, there's lots of other macro things that aren't working well, including anything related to housing is weakening off here. We have all these reports about the sort of lower class and middle class who are making no headway. As you know, President Trump suggested that non-military federal employees will not get a pay increase in 2019. And I'm sort of thinking to myself, well how's that going to work for the next Consumer Confidence Report? You know, and heaven forbid that the states and municipalities kind of tag along here. And you know, you ended up with 30% to 40% of the population getting a wage increase, while inflation of course keeps moving up here. I don't believe the statistics. We've talked about that before.

So, I think there's some doubt about that December rate increase and, of course, it's the discussion a la the Bullard comments start saying, ''Well, maybe we don't need that increase. '' Of course. That would be very powerful for gold here.

Craig: Set off maybe a short covering rally. Eric, and maybe we'll just conclude there. We're going to get another Commitment of Traders report today and I suspect, at least on my end, that do it will get a little bit of a move back in the other direction where the speculators maybe have started to cover shorts, particularly in silver. But Eric, what do you make of this? You sure would think we are poised for a tremendous short covering rally, the extent of manage money, he hedge funds, the trading funds that are short, that digital gold exposure on the COMEX. So, you sure would think that's just a fuse that's waiting to be lit.

Eric: Well, there's no doubt between the sentiment being as poor as it is, the technicals being as oversold as they are. The short position being as high as it is. Those are three of the primary ingredients in suggesting that you should be bottoming here. And needless to say, we've had a decent rally already. I don't know what exactly what the low was in gold, but it seems to me it was at least down to the 1170 somewhere. We're today at 1210.

So, we have a decent rally going on here. So no, I think that the COT setup is good. There's still a lot of volatility in the gold price. Yesterday it was down sharply. I think two days ago, it was down sharply. And when I see it going down quickly, like in two and three and four minutes at a time, I always think of the hedge funds trying to manipulate the price of gold down. They might in fact be making their short position even worse here. So, it'll be very interesting to see the reports. I surprised it wasn't as much a covering of shorts in the last week report considering that we looked like we might've bought them. So, I think that is very much supportive of both precious metals here.

Craig: And now next week Eric, we get back to having all hands on deck. This is traditionally a very light volume, big vacation week for traders. What traders there are left, human carbon based traders at least, both in New York and in Europe. But we have a holiday weekend this weekend and it's kind of back to, like I said, full staff trading desk and everything next week, maybe we'll get a return to some volatility, some additional volatility and maybe a trend change.

Eric: Well, I think as I said that the fact that the options have expired, typically they mess around with the price of gold when options are expiring. So that's good. I think, you know, whenever I see the Indian rupee declining, and I think of the people in India, which is a huge population, they're going to pick gold before they pick of the U.S dollar. Okay?

Craig: Right.

Eric: So, anybody over there who was trying to protect themselves, and that's a lot of people, are going to be buyers of gold. And it's not just the people either, it's the companies have to think about what, you know, how do they protect themselves with the currency declining at the rate that it's declining? So you know, there's got to be a lot of people just thinking about well, it doesn't take much at the margin of new buyers to come in to make a big price change. And of course, having the whole short setup is like, then it gives some real fireworks.

Craig: And again, when it's the commercials, the banks who are short, they have infinitely deep pockets and at least allegedly some metal to deliver. A hedge fund that's short, doesn't have that luxury, do they?

Eric: Yeah. No, when it starts going, they got to really recalibrate quickly.

Craig: All right. Well, and as we said, we're now kind of the unofficial end of summer and this is the last day of August. So as we wrap up, I just want to point out to everybody that the folks at Sprott Money, have a very exciting deal for storage clients here in the month of September only. Storage clients can buy Sprott rounds at just 89 cents over spot per ounce and Sprott bars at 79 cents per ounce. That's for storage clients. If you're not a storage client, become one.

You can take advantage of this deal just simply by opening a storage account with us and you'll get access to this exclusive offer. Again, just visit sprottmoney.com or call 8888610775. Open that storage account. And again, check the deal tab for great deals over the weekend too. Eric, thank you for your time this morning. I hope you enjoy what should be a three day weekend and we'll talk to you again next week.

Eric: Okay, Craig.

Craig: And from all of us here at Sprott Money News and SprottMoney.com, thank you for listening. Have a great holiday weekend if you're allowed one and we'll talk to you next Friday.