Eric Sprott discusses why there is truth in the "peak gold" theory - Weekly Wrap Up (July 13, 2018)

Transcript:

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

Craig: Well, hello again from "Sprott Money News" and sprottmoney.com. It's Friday the 13th of July, 2018. This is your weekly wrap-up. I'm your host, Craig Hemke, and joining us today, as usual, is Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig. Good morning. Another difficult week, it would seem, for the precious metals markets. Some of the stocks we are involved with, not so much, but it could've been a lot better.

Craig: No doubt about that, my friend. As we record here just before 9:00 a.m. on Friday, we are clinging to support. I think just about anybody could draw a trend line that begins at the bear market lows back in December of 2015 and connect them with the lows of December 2016 and extend it on out, and it's about a 1240, is where you find that line. And that is right where we find price today. I don't know, Eric. Do you put much stock in technicals like that? Does that mean much to you?

Eric: No, it doesn't, but the thing about the technicals is, if you assume that the markets are abused, which I think they are, of course, what happens is you always have to break through the low so that every hedge fund and speculator out there wants to short gold if you're the guy, you know, working the strings here. And, of course, it worked when it went up. It looked like it was breaking out, and all of a sudden it collapses. And I would suspect that, yeah, take it down below support, everyone knows it's going down, and you get the flush. And, you know, the rinse, wash, and repeat has been done again, and away we go. So I think that there's forces at work that don't allow the technicals to be a true representation of what's going to happen in the future.

Craig: Yes, that's a good point. And, obviously, the banks use that against folks, too. It may lead to even lower prices. We'll just have to wait and see, and I think that's an excellent time to point out something new we have at sprottmoney.com called Eric's Pick of the Month. I assume we're referring to you.

Eric: Must be.

Craig: You must be the Eric. All right. So, anyway, your pick this month is a 1-ounce Gold Maple Leaf coin. How about that? Random years. You can buy them for just 35 bucks over spot. So 1-ounce Gold Maple Leaf for $35 over spot. That's a pretty good deal, especially if Sprott...Sprott? Spot. Sprott spot. Please call 888-861-0775 or visit sprottmoney.com for more info. Eric, I do want to kind of segue from technicals to fundamentals. I thought this was some fun information that you would enjoy and maybe everybody else out there. I saw an article late yesterday from the gentleman that runs that site, Small Gold. He's usually on top of sovereign demand. Let me hit you with this. So far, year-to-date, the country of India, through April, four months this year, has imported 2,900 metric tons of silver. They imported, just in April, 902 metric tons in a month. Again, that gives them 2,900 through April. At that run rate, that puts them on a pace for 8,700 metric tons, which is about 275 million ounces this year, which is fully a third of global mine supply. So you've got one country importing a third of global mine supply and the price falling.

Eric: Right. Right, it makes no sense. And, of course, that's probably up from maybe they did 20% last year or something. And you always say to yourself, "Well, how can somebody come in and buy an extra, you know, 10% of a commodity and the price go down, particularly when that commodity's supply really is not changing?" In fact, I think it might even be going down. So, again, that shows the disagreement of the irony of the physical market versus the paper market, that somebody's able to just buy that much of a product, and it's not reflected in the paper-determined price. So, I mean, that data is wonderful, and I hope it carries on because, sooner or later, it will play out in the paper markets.

Craig: Maybe we'll get Andy to buy 100% of mine supply and see how low price falls on that one. Oh, my.

Eric: We get a little bit that way. We get kind of jaded, don't we, that we can keep looking at this information, it's all good, and somehow, miraculously... It's like us looking at the EFP, the exchange for physicals. And you probably got two or three year's supply has gone over to London for demanding physical delivery, and we're supposed to believe that it was delivered, which I don't know what happened to that stuff, but it's crazy trying to analyze, in a fundamental way, the gold and silver markets.

Craig: Yeah. But it's not just silver that's having a tough time or gold that's down. All commodities are really getting worked over at this point. Copper, Eric, I'm sure you've noticed, is down nearly 20% in just the last month. Do you relate a lot of this back to the growing trade wars, or what do you think is going on?

Eric: Well, I'll tell you what I think is probably going on. You know, when we look at the bank earnings, they say, "Well, we need volatility in markets to make money," and you got to read through that. Well, why would you need volatility? Well, because we're going to get you one way or the other, okay? And if we can get something to go up, great. If we can get something to go down, great. And would I imagine that the banks are on the other side of the trade? Yes, I would. And do they have the money to pull it off? Yes, they do because, quite frankly, maybe there's really hardly any physical copper trade. It's all just paper anyway, so if you've got unlimited pockets, you can make things do whatever you want over a very short-term basis. And let's not forget that oil had this huge rally. Now, it's crashing again. And I would think that this is part of the makeup of what the banks like to orchestrate in order to keep their earnings up, so it doesn't surprise me at all. Although, I would say this. I mean, the trade war is not good for anything, although it doesn't seem to bother the stock market, for some bizarre reason. But it affects real things. But copper demand would be impacted if all of a sudden trade shrinks. Of that, there's no doubt. So, in that sense, there's some reality to the move in copper.

Craig: Well, there is a limited supply of things. No doubt about that. There was some interesting talk this week about the idea of peak gold. Do you want to discuss that for a minute?

Eric: Sure. The only reason I'm bringing it out, I see a lot of articles about it. And, as we get the production results for some of the major companies, we realize they're having a tough time increasing production. South African production goes down every year. They used to supply like 30% and 40% of the world's gold. I think they're down to like 5% now. The unions are demanding great wage increases. Most of the companies producing gold in South Africa are losing money, so you may very well get a strike there, which would take more supply out. So I think it's becoming a bigger and bigger feature that the big companies are talking to this because it's the big companies that are having a very difficult time increasing production. And there's been some great write-ups done on, you know, we consume 80 million ounces of gold in a year, but we don't find 80 million ounces of gold in a year. The big discoveries are long gone. Back 20 and 30 years ago, we used to find like a 50-million-ounce deposit every year. We haven't found any. We don't find 30-million-ounce deposits. We're having a tough time finding 10-million-ounce deposits. So, sooner or later, if you don't keep finding it, you're not going to be able to produce it, so I think there's some truth in the peak gold theory, not that that would change the price in the paper markets, of course, because paper markets are the paper markets. But I think when the day comes that the physical markets take over, we'll be in good shape.

Craig: Yeah, as long as the banks still have the ability to create digital gold, you know, all forms of synthetic gold and unallocated gold, I guess who needs to find the real thing, right?

Eric: Well, maybe all the governments will outlaw gold ownership, right?

Craig: Yeah, they can do that again, sure.

Eric: As Iran is trying to do, as their currency is depreciating quickly and everyone's trying to buy gold. The next thing you know, they're going to say, "Oh, you can't buy gold," you know? Anyway, you know that that could happen.

Craig: Yeah, not that there's any historical precedent for something like that, that's for sure.

Eric: Yeah, right.

Craig: All right. You mentioned, though, there are ways to make money even when the prices are falling down, going down. It's just a lot more difficult. It's a lot more challenging. You got to do your homework. You know, a rising tide lifts all boats, but you can still find a boat to sail on even when the tide's going out. I'd love to ask you about some of the news from Kirkland Lake this week because of your involvement there as a Chairman of the Board. Anything you could add to what was announced?

Eric: I will. But, you know, one of the interesting things is, looking at the five best-performing gold stocks on KITCO yesterday,and I sort of that I've had my eye on for them. I only own one. One was Kirkland, but Asanko was there, Oceana was there. There was another one whose name I'm forgetting right now. But they were all companies that I kind of had my eye on. Well, it looks like things are doing well, and they were all up about 3%, including Kirkland. Kirkland, I guess, was up because we didn't announce our production early this week. We produced roughly 165,000 ounces in the quarter, up from 148,000 in the first quarter. The 165,000, I mean, it's an annualized rate of 660,000. We should be doing better in the second half of the year as we get into some of the higher grade Swan Zone at the Fosterville mine. So, I mean, the stock is within, I think, about 12 cents of its all-time high of $29.99 here. So there are ways to make money in this market if you can find some company that's bucking the trend here. And the stocks have acted pretty well in the face of this. It's a rather sharp decline the more I think about it. You know, we've gone from $13.50 to $12.50 or $13.60 to $12.50. That hurts a lot of guys' earnings, including Kirkland Lake, for that matter. But some of the companies are able to offset that with higher production and the hope for higher production. So there are things that have done well in the prices of metal area.

Craig: Yeah. No doubt about it. And it's always good to buy low and sell high. We've certainly all had our opportunity the last few years to buy high, and now you've got an opportunity to add at what are really prices that are now down near the all-in production cost and that kind of thing. And, to that end, I've got one more offer for everybody before they leave "Sprott Money." You want to stop by, look at the inventory we have there because there is a Royal Canadian Mint 10-ounce silver bar. So it's a 10-ounce bar. These are handy. They're nice. They stack, all that kind of stuff. Very special price just this weekend. Visit sprottmoney.com or call 888-861-0775 for more details on this limited quantity offer. Eric, let's hope we have some better news to discuss next week, but, for now, let's keep our fingers crossed that we can turn this ship around sometimes.

Eric: Well, it's not all bad. I mean, there's some good things happening to some of the stocks, and it's unfortunate that gold and silver aren't making it very easy, but there's lots of reasons to think that that could turn around them. We've had the rinse cycle here, so let's hope it's about ready to end.

Craig: Let's do it. All right, my friend. From here, I will give you the rest of the day off, and I hope you have a great weekend.

Eric: Yeah. You too, Craig. All the best.

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