Eric Sprott discusses the rate hike and looks ahead for the mining shares (Weekly Wrap-Up - June 15, 2018)

Transcript:

Announcer: You are listening to "The Weekly Wrap-Up" on Sprott Money News.

Craig: Well, greetings once again from Sprott Money News and sprottmoney.com. It is Friday, June the 15th, and this is your "Weekly Wrap-Up." I'm your host Craig Hemke. And joining us, as usual, once again this week, is Eric Sprott himself. Eric, good morning.

Eric: Craig, good morning. How are you doing?

Craig: Yeah. I knew you were going to ask me that. I'm not in a very good mood so... I am so sick and tired watching gold go sideways. It has been remarkable but I'm going to let you carry the enthusiasm this week. Gold is sideways for the week, down again this morning, and sideways now for about a month, which I think is pretty remarkable. But silver's up, Eric. It's almost up 3% this week. So that's not too bad.

Eric: We'll certainly take it. It's been leading the way here. It's been surprising how it's gone up when gold hasn't really participated, then finally gold participated sort of the middle of this week but then as you mentioned today, it's selling off. But I think silver's probably the more interesting thing to watch, and of course, has probably got a tighter supply. I saw something where GATA has gone to the CFTC, I think. It was the CFTC, and said, "We notice..."

Craig: Come troll [SP] off the currency.

Eric: Yeah. No, the Commodity Trading Commission and said, "We notice that a lot of contracts are being settled by exchange from physicals." Oh, no. They went to the American Banking Association. That's what they went to. And American Banking Association said, "We notice there's a lot of use of exchange for physicals being settled in the commodities markets. Has your organization looked at these potential liabilities of the banking system, and could you please tell us that you are aware of it and that it's under control?" So I thought that was kind of interesting. Now you know what's likely to happen of that, but I just got to admire GATA for sticking their nose and they may be finding the sensitive nerve by speaking to the banking regulator.

Craig: Yeah, exactly. They... Well, and God bless them for their decades of work. They're relentless, no doubt about that. And we're going to talk about gold, we're going to talk about the economy here and how, you know, here we are, down $10 or $11 as you and I speak. Well, that's $10 less per ounce that is going to cost anybody if they take us up on a deal today. This is for Canadian listeners. We have RCM gold bars at Sprott Money for just $18.99 over spot. That's a pretty good deal. We might as well call it $8.99 over spot since gold's down $10 today. You can call 888-861-0775 or, of course, visit sprottmoney.com for more info. Limited quantities are available, so go there immediately after you finish listening to us. Eric, like I said, gold flat, silver up. But what an interesting week with the FOMC, the ECB telling us all kinds of things. What do you make of all the cross-currents?

Eric: Well, really nothing unusual happened with the rating fees. We all kind of expected that. I think the ECB probably was anticipated that they would end it, maybe they actually pushed it a little longer than we might have thought, and of course, they certainly suggested the first rate increase wouldn't happen till the second half of '19, which is probably a bit of a dovish statement on their part. And it really didn't have, you know, any significant outsize impact on the gold market, but I can guarantee you... I mean, where all these things are having their impact is in the emerging market currencies. And, I mean, the volatility's been absolutely incredible and things like the Argentine peso and the Turkish lira, and all these lesser currencies that have been weakening, and sort of anecdotally I am reading about the Argentine peso and they were saying that since 2001, it's the Argentine peso's down 96%, which is almost very difficult to believe, right?

And, of course, I go from '01 to today. I said, "Well, that's interesting because the gold price's up $400." So, your currency is down almost $100, and gold price up $400. What should you have done in that intervening 18-year period? And it's the same and true... Of course, for Venezuela, it's probably even the bigger difference with their currency doing what it's doing. And all these currencies around the world, they have lots of people living there, they should be protecting themselves. And, of course, I find it very instructive that the Indians are the largest owners of gold in the world. And it's because they have an inherent distrust of banking and governments. And, of course, the governments are always trying to get them not to buy gold, and of course, they prefer to buy gold rather than the paper currencies.

And, I mean, if more people in the world acted like the Indians, we would have a much different gold and silver price today than what we have. So, the currency crisis that's going on, it's going to bring people into the gold market unless they just continue to be totally unaware of what's going on, but you'd think more and more people would come there for sure.

Craig: And you mentioned the crisis in debt, it only continues to grow. The ECB saying they're going to hike rates a year from now. You know that, like, a lot going to happen between now and next year, no doubt about that. And the fed has their little charade going on too. But while the debt continues to just... I mean, we're talking trillion dollar deficits in the U.S., Eric, as far as the eye can see.

Eric: Yeah. I read an article that you published for Sprott Money on funded liabilities, and I thought the most important thing that was pointed out was that... And I think it was the Social Security Fund that posted last year's report, the date when it goes broke, moved up by three years.

Craig: The Medicare. Yeah. That was the Medicare Fund.

Eric: I mean, you can't have that happen too many times, right? I think the Medicare Fund, what was it going to be? Was it '20, '29, or '26?

Craig: Yeah.

Eric: Or something like that, and that obviously went from '29 to '26. I mean, can you imagine if next year it goes from '26 to '23, and the year after that it goes from '23 to '20? And we're in '20, you know, we're broke. And then that could very well happen because all these things are miscalculated, I think rather intentionally so that they don't surprise people. It was a great article, I congratulate you on it.

Craig: Oh, thank you. You know, and what's funny about all those... Well, not funny. Funny strange about all those government projections is they all rely upon 3% and 4% GDP growth. But, yet, Eric, I want to ask you what the bond market is telling us because here the fed is trying to proclaim more interest rate hikes to come, yet the bond market is rallying the spread between the 2-year note and a 10-year note's down to 37% basis points, that's the lowest in 11 years. It seems to be a recession is almost in the cards for certain by next year. I mean, do you see it that way?

Eric: Well, I mean, that's when you... You have to imagine that happens as short-term rates go up, and car loans costs go up, and mortgages go up. You know, you're going to see weakness in those things that were interest-rate related. And anything interest-rate related is where we had our strength. So, as these central banks continue to not supply the candy to people in the form of lower interest rates and printing money, you have to expect that things are going to slow down. And now we have the second major central bank saying that it's going to end at the end of '18.

Japan's still printing, but, you know, with two of them not printing and only one left printing, I think it's fair to say that that's going to be quite a change in trend and it should have its impact on financial assets, which have been buoyed all of these. So, I certainly have always anticipated that it was almost impossible to raise rates without ending up with a recession and therefore some kind of market decline. And in another interview I gave this week, you know, somebody asked, "Well, what's going to make gold go up?" I said, "Well, there's two things in my mind." One is, you know, if crypto-currencies get totally trashed because a lot of speculative money went there, which could have gone into...and logically could have gone into the precious metals, and/or if the market heads down.

And we should probably talk about the trade wars here because that might cause things to cool down. But I think just the fact that the central banks are doing what they're doing is very likely to lead to stock markets coming under a lot of pressure here. So that's something that will obviously help gold because gold will survive all those things. And by the way, while I'm on the trade where we get this big spat going on between the Americans and the Canadians, you're American I am Canadian, you know, we'll probably have to put a tariff on seal skins and [inaudible 00:09:31], and maple syrup, and stuff like that. So, you get ready, okay? Your inflation's going to be going up here when we finally get out list out. And I know what...

Craig: I'm headed out to the store today.

Eric: I don't know what's going to be on your list but... Oh, Canadian bake and let's not forget that, okay? Anyway, but on a more serious note, I mean, just the fact that both countries... And it's not just with Canada, obviously, right, you have it with China, with the EU. The funny part about tariffs...of course, we know who collects the tariff. That would be the government. And we know who ultimately pays the tariff. That would be the consumer. And it ends up being a shift of money from the consumer to the government. Now, it ultimately has a purpose that maybe it will create some jobs in time, but, you know, if everybody starts slapping tariffs on everything and you get a PEO pay [SP] at 20% more for your maple syrup, it's not going to be good for the guy in the street, it's already bad for the guy in the street. So, trade wars are not something that anybody wins, in my mind, and in fact, the population loses. Maybe, you know, if they slap a 50% tariff on everything, maybe the government could get rid of their deficit but we'll all be broke in the meantime. So, we should reflect on that.

Craig: Eric, just one last question this week. And let's deal with the shares again. First of all, you've been telling me every week, and by extension, our listeners, about this company where you are chairman called Kirkland Lake. You first started talking about it last summer it was $8 a share, today it's over $20. So, congratulations on that. And I congratulate every listener that follows us each week that maybe has taken advantage of that. And then I also know that Kirkland Lake is a major investor in noble resources. We talk about that a lot. And I had a question that we'll close with today that was emailed to us from a Sprott Money customer that just had noted that the news releases out of NOVO specifically from a Dr. Henning have been increasingly optimistic. Last year they were a little more conservative, not really complete, but now they seem to be brimming with confidence and enthusiasm. And so, the question from this Sprott Money customer just was, if you could elaborate on that, do you sense that as well?

Eric: Sure. Well, I do sense that there's a lot of optimism. And, of course, the critical thing with NOVO is, does the theory of a basin-wide gold endowment hold water. And, of course, basin-wide, the Pilbara basin is 250 kilometers by 250 kilometers. That would be a lot of gold. It would be like Pilbara... Sorry, like Witwatersrand that had, you know, over billion ounces of gold. So that's what the prize is here, okay? And there seems to be a continuing evidence of that. We had an announcement this week that somebody found the same style of nuggets that they found the Comet Well, 250 kilometers south-east, where the outcrop comes out on the southern part of the basin. So, we're getting more and more information.

One thing that I would say is I don't find the news releases as helpful as I find the interviews that Quinton has, and I certainly listen to the interviews very carefully, and I think there is sort of indication there, for example, I think the last interview he said, "Well, we hope that in, you know, couple of months from now we might indicate that we don't have just Comet Well, we might have, you know, two to three other places where we have the same endowment." So, yeah, I'd say that he's getting upbeat and I mean, the stocks come under some pressure here because we have to wait another couple of weeks, I guess, for the next announcement. Although he has promised something for midmonth that I don't think it will be sampled but some other comments and we'll wait to see what those are, but I know that he is confident and I am confident. I'm not giving investment advice, but I have been a buyer in the market and I sort of like what I'm seeing.

I probably should make a comment about Kirkland Lake only because it is hitting new heights and the only thing I could suggest, and even I don't know the exact timing of this, but, you know, when you've been mining 15-gram gold, and you have a zone that has 60 grams of gold, when you mine that zone, you get 4 times the gold. Now, we're not mining that zone yet, but it's anticipated that we will mine parts of it as we go into the second half of the year. So, what's kind of my expectation that perhaps we'll have a good chance of surprising on the upside in terms of our second-half production. And, you know, everyone tends to be a little bit conservative because you don't know when you're going to get there, you don't know if the grade's going hold up. A lot of times, by the way, the grade's better than what you think, particularly in the high-grade gold ore body. So, that will be interesting to see how that plays out for the second half of the year for Kirkland Lake Gold. So, it looks pretty from my vantage point.

Crag: Yeah, and you mentioned, it is almost the second half of the year and kicking off the second half of the year is the first day of summer, and it's also going to be Father's Day, my friend. We're going to have Father's Day... Do you celebrate Father's day up in Canada?

Eric: We do. We do. We're fathers up here too.

Craig: I guess that's true. Yeah. Fair enough. I didn't know if it was just...

Eric: We haven't traded that away yet, okay?

Craig: It's one of those Hallmark holidays.

Eric: We'll trade our Mother's Day for your Fathers' Day. It's part of the trade war so...

Craig: Hey, hell no.

Eric: No, we do celebrate and I'm going to be joining my daughters and grandkids at the baseball games so it should be a lot of fun.

Craig: All right. Not that you don't already have enough physical silver and gold, we do have a special. We talked about this last week. Everybody should check this out because I think this is remarkable. At sprottmoney.com, you get a 100-ounce Johnson Matthey silver bar. Fifty-five cents over spot. Somebody's going to dig that stuff out of the ground, refine it, and cast it, and then even ship it to you at the end of the day for 55 cents over spot. That's remarkable. Limited quantities available as a special Father's Day promotion at sprottmoney.com, or 888-861-0775. Happy Father's Day, my friend. I look forward to talking to you next week.

Eric: Hey, Craig. It's been fun. I hope we'll be able to get a better week in the metals next week. So, we keep our fingers crossed.

Craig: Let's do. All right. And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening, and have a great weekend.