Eric Sprott Is “Very Concerned.” You Should Be Too - Weekly Wrap-Up (Sept 27, 2019)

Speaker 1: You're listening to, The Weekly Wrap-Up on Sprott Money News.

Craig: Welcome back to The Sprott Money News and sprottmoney.com Weekly Wrap-Up. Established in February of 2008, Sprott Money is a leading precious metals dealer selling gold coins, silver coins, and bullion bars online and over the phone. Learn more about Sprott Money through our informational podcasts and get the latest precious metals news from our expert writers. You can of course go to sprottmoney.com to find out more, sign up for our newsletter, or call us at 888-861-0775. For the Weekly Wrap-Up, I am your host Craig Hemke. And joining us, as usual, this morning Friday, September 27, is Eric Sprott himself. Eric, good morning.

Eric: Good morning, Craig. Dealing with the options expiry here but that ends in North America now and all we got to do is get through Monday and we should be okay.

Craig: Yes, quarter and as well we've got some COMEX contracts going off the board. All of the usual shenanigans we can hope that the Department of Justice will just indict more and more traders and go up the food chain and indict their bosses as well. But for now, the fun and games continue my friend. Gold's down about $20 in the week. Silver's down about 40 cents. Maybe part of a natural correction as well to wash out some of the over-bullishness, but we're heading into a pretty good seasonal time of the year. Eric, the data doesn't seem to get any better, the crises are only seeming to get worse. What are your thoughts?

Eric: Sure. Well, first of all, I found it kind of hilarious when we had that big down day that they apparently said the reason was that because Trump was not going to be impeached so they're slamming gold. Well, of course, now it looks like they're working harder than a bee. But the funny thing is, it doesn't go back up again. You know why? Because it's options expiry. And I thought the most hilarious thing that I've read in a long time is that some people have decided that Bitcoin prices tend to go down before the contracts expire on the CME. Isn't that funny?

Craig: No, you don't say?

Eric: Yeah, and they have gone down 20% here in the last week, and their contracts expire. And of course, I think the whole CME is set up to keep control over commodity prices. And of course, the clients of the commercial banks typically are always the buyers, okay? I mean, there is no commercial selling, who's kidding? And there's no people trading these things sort of professionally. Like, the gold companies aren't doing huge hedges on the COMEX. It's all just a market for people to prey on other people. Of course, the big guys prey on the little guys, right? So now they have another market to prey on and that is the Bitcoin market. And I found it very interesting, this article that was on Zero Hedge that said, "Oh, there seems to be some analogy at quarter ends that when the contracts are expiring, Bitcoin goes down." Well, welcome to our world buddy. Anyway, so let's see, what do we want to talk about here?

Well, first of all, you know, the economic data is not so hot. We had consumer confidence plunge in the U.S. Of course consumer confidence is plunging in Europe. Imagine what the consumer confidence in China is like these days? Wow. Or how about India, with their car sales down 30%? What's their consumer confidence like? We had personal income was announced today as a point...oh, it's huge, 0.1%. Wow. Let's go out and buy all sorts of things here.

Of course, the biggest deal going on, unfortunately, is what's going on in the repo market. And it's really cheesing me off, that a poor, old gold guy, precious metal guy like me has to spend all that time trying to figure out what's going on in the repo market because the New York Fed lost control of it and of course the rates went up to 10%. And so now, because it's a very complex thing that's going on, of course, I going to read more damn articles about the repo market. And I think it's suffice to say that the banks have run out of... have a shortage of liquidity. The banks do, which seems rather rotten. You've had 10 years of supporting the banks here, and printing money and all that stuff and now they got a shortage of money? Hard to imagine that's happening.

You know, and of course, all I'm trying to just say, "Well, why would they be running out of money?" Of course the scariest reason would be, "Well, you know what? Maybe when rates went back up a lot of guys who own bonds took a hemorrhaging hit on those things," because guys who own bonds tend to own them on a leverage basis. And when those rates backed up there were probably some serious losses and not just on the bonds but imagine the derivatives on the bonds and what the size of those losses could have been.

So I keep watching it. I think it's very disconcerting. The Feds now, when this thing first started, they had a repo of 50 billion to probably middle of last week or something. And it got oversubscribed meaning they wanted more money than that. Well now they're doing hundreds per day, 100 per day. Plus, they're doing 60 billion, 14-day repos. So now they've committed to put 220 billion. Out of nowhere, we got a $220 billion shortage of liquidity, out of nowhere. Wow, how does that happen? You know, in this wonderful world, where everything's going up all the time, we get bubbles here and bubbles there and next thing you know, somehow we seem to have a shortage of money.

So that is very much of concern, and everybody should keep watching and trying to understand what might be happening. Maybe it's a big bank that has a particular issue, you know. I can...I only say one bank, there's a bank out there that's got all of 16 billion of equity and 49 trillion of derivatives, trillion. I wonder if they could be having a problem. Who knows? That's Deutsche Bank by the way? I don't know. Anyway, we'll see.

Craig: I can't do that math as to what that percentage, what that leverage ratio is. I haven't had enough coffee this morning but it's a lot.

Eric: You can almost use the infinite sign for that.

Craig: Yeah, that's pretty close, you know. And as we look at that, the only way out, it would seem, especially with the declining global economy, the numbers, as you said, in Germany are terrible. More QE is coming. I don't think there's any doubt about it. And as we look at these declines in prices, are they really the prices of gold and silver or is it just the futures contracts that get manipulated around? Anyway, this is a great opportunity for people. If you haven't had a chance to position yourself correctly for what's coming and what is actually unfolding, that's what these pullbacks are for. Eric, we're seeing, some people I guess, this means are taking advantage of that, huge inflows into things like the GLD and SLV. GLD has 31, allegedly, 31 metric tons of gold going into it this week.

Eric: Well, they had guys that thought they were buying 31 tons.

Craig: Yeah. Exactly.

Eric: Whether it got delivered or not or whether there was a piece of paper in the mail, which is more likely, saying that you own 31 more tons. But it's interesting that...31 tons, I mean, that's if you annualize something like that, you know, that's 1,500 tons a year in a 4,000-ton market. I mean, you can't squeeze that in, okay? Probably last year, we probably lost tons in the GLD. And this year there might be a net difference of like 1,800 tons in a 4,000-ton market. Well, how does that happen?

And in the silver market, for example, the ETFs so far this year, all the world's silver ETFs have consumed 17% of the silver market. And only 25% of the silver market goes to investments unlike the gold market where 90% goes to investments. And of course, you add in what's going into India where they bought in excess of 3% of the silver market in the month of July and most of that would be for investment. I just see that there's going to be and is a physical shortage of silver. The Royal Canadian Mint has people on allocation. Australia has people on allocation. Understand there's no 100-ounce bars available at either mint.

I think it's a great, as you pointed out, it's a great time to be buying gold and silver. I actually bought quite a bit this week, losing on it, fine. But I will be back to the party again and buy more next week. So I think it's good. One thing I do want to talk about is I've mentioned this gentleman's name Chris Vermeulen. His fund is called...his service is called Technical Traders but he did something on gold. And this is a guy who back in May said, "Gee, I think it's going to go from 12.75 to 14.50 in 5 to 7 weeks," and effectively did, blew me away. He's suggesting gold and silver would bottom out here in early October. And his target on gold is 17.95, I believe is the number. And his target on silver is 21 to 23 maybe 24, I'm not sure, 21 to 23.

So I think this is something that people should sit up and take note of. The physicalness is looking real good here. The world should be going to precious metals. I mean, the more you... And the whole repo thing is playing right into it. And if you're a bond guy, you are just quaking here seeing what happened to that market in a day and the rates went from 2% to 10% in like 2 days. It's incredible that you could lose control like that. So who knows what's going on? But I don't think it's going to be minor.

Craig: Yeah. Yes, no doubt. And we're heading into October, which always seems to be a rather interesting month for the stock market.

Eric: Very.

Craig: Eric, anything else on your mind before we discuss some of the miners this week?

Eric: I guess the only thing is, you know, we'll start getting, I think, some of the production results, third quarter production results from the mining companies maybe late in the week. So that'll be very interesting to watch where some of them might have, you know, significant production that will be price moving. I'm hoping that Kirkland Lake is one of those, by the way. That they'll have significant production that might cause people to sit up and take notice. But I want... You know, well, there's a couple of companies that I do want to talk about. Because there was, well, one had some news. Tudor announced their drill hole which was 1,100 meters of roughly 0.6 grams of gold. That's a huge, huge, huge intersection. I've always thought that this thing has an easy shot at coming up with 20 million ounces of low-grade gold. And there's nothing in these drill results that deter me from thinking that. And they're well-positioned in terms of logistics of where they are, so that's good.

I had the chance of just bumping into the Wallbridge people at a gold conference I was attending. Things look good there. I hope they come out with some... Well, they would be coming out with further drill results. And I just hope that these drill results will really bring a sea-change to how people view the potential opportunity in Wallbridge. So those are the only two I specifically wanted to comment on. I'm sure we might have some questions about some other ones.

Craig: We do. Just in general too, Eric, a lot of folks are kind of, I don't know, frustrated, disappointing, you know, that gold has moved up so far and silver's kind of... You know, they're both up, whatever, 18%, 19% year to date. But yet, you know, things like the GDX and GDXJ and some of the individual shares haven't really caught on yet. Is that just a public perception? Is that a lack of institutional participation? Do we got to get a couple of good quarters behind us before people...you know, institutions start to get excited? What do you think is holding things back?

Eric: Well, one of the things that will change that will be when the third-quarter earnings results come out. And they got to be much better, okay, on a $200 price increase. And then finally the computers will figure it out. It's very important that the computers figure it out, by the way. I think the computers are more important than the analysts. Because a computer keeps spitting out buy gold stocks, buy gold stocks, buy gold stocks, you know. So it's like when the computers at Investor's Business Daily had Kirkland Lake as the number one stock in the U.S., number one. And hey, look what happened to the stock for God's sake, because the computer figured it out. So I think it's important that these third-quarter earnings come out now. The earnings won't come out until probably late October, mid to late October. The production will be out earlier. So I think that's what will bring about a really big sea-change here that some of these earnings are going to look very dramatic.

Craig: Okay. And before we get to some of the names this week, just a reminder. I mean, Eric, we look at all these things, and Eric tells me ahead of time if it's something he has an opinion on or not. So if we don't address a name that has been sent in it's not that we're just ignoring you. We just have to save some time. And if you do want to ask Eric a question about an individual minor, and we try to get to those, like I said, you can email those to us at submissions@sprottmoney.com. Get them to us by about noon every Thursday and then we'll have time to put them all together. So again, so this week, we had questions on companies like Allegiant Gold, and Mako Mining, Great Panther. Those are all question...companies I asked Eric about, he just currently doesn't have an opinion. But a couple that he does have an opinion on that we can address are companies like Wesdome. Eric, what can you tell me there?

Eric: Sure. Well, Wesdome actually came out with their new reserves at the Kiena ore body. They went up by roughly half a million ounces. And of course, they're good quality ounces. I always find that when you get what's sort of an update of a 43-101 everyone's always disappointed. I actually haven't looked to see what Wesdome did on that news. But I have great hopes for that particular ore body. I was an owner of Wesdome at one time, not that long ago. Did well on it. But I don't own it today. But I recognize that it's been one of the great stocks and that's going to be a very interesting ore body, the Kiena. I'm sure the decision to reopen it can't be that far away.

Craig: How about US Silver?

Eric: Well, US Silver, I'm a big owner of US Silver. I, of course, buy it for the silver. Well, they do have base metal credits. Recently it was announced that I bought a 40% interest in the Galena Silver Mine that they own and it's in Idaho. And they were looking for a way to kind of inject some capital into it to expedite the sort of upgrading of production there. And of course, I, as I've espoused here many times, one, I get into silver. So I thought, "Well, that's a good, wonderful combination. I'll put the money in." And I took back a 40% interest in the joint venture. So that was very appealing to me for the silver credit. And of course, I'm a very large shareholder of US Silver as it stands. So obviously I think things are going to look real good there. I think as they get their new mine into production, which I think is very, very soon, things will change dramatically for this company when things get reported next year.

Craig: Yeah, and especially get the silver price to go up a little bit, I'm sure that would help too.

Eric: Indeed.

Craig: I saw something this week too that Royal Nickel found another one of those big, old boulders on their property. Did you see that?

Eric: Well, yeah, and here's the amazing thing about it. They said they found, I think it was like 1,600 or 1,700 ounces in 576 kilograms. I'm telling you, 576 kilograms of rock is not big. It's about the size of my stomach actually. That's what my wife would say. It's not big, I mean, it would sit on my desk here, okay? Which really tells you that it's like finding a needle in a haystack with these things down there. And of course, I've always said, you know, you find some of it, you going to drill about two feet away. If you're more than two feet away you may not find the next one. So it was good that they found it. I just find that, you know...I never did like them taking on the mill and incurring the debt and then they got to do an issue. And it didn't look like the issue went off too well. But I mean, I've always said, I like the orb. I think they have new management. I'm still a big shareholder, so hopefully, with the price of gold going up, and these guys maybe solving the riddle of where these little pockets of high-grade gold are, things should work out well for them.

Craig: And as we wrap Eric, yeah, here we are at the end of September. It's the end of the quarter. We've got the October COMEX contracts going off the board, we've got LBMA options at the end of the quarter on Monday. But it sounds to me like you're thinking perhaps October is going to be a good month for us and that you're excited into year-end.

Eric: Well, we've had a good run this year. And of course, every time gold rallies a little of the stocks, I think it weigh more and more interesting all the time. I was out with the executive of a big gold and silver producer and he was telling me that, you know, he gets calls from Europe and these big money centers in New York from more generalist investors now. So I think everyone's got their eyes and ears open and, you know, fingers crossed that Mr. Vermeulen's number 1,795. I don't want to tell you what they would earn, okay? We would be talking big, big, big bucks here. And these stocks will all move considerably. So yeah, there's lots to get excited about.

Craig: Yeah, that's the hard part. I mean, we've had such a really solid year for the first time. I mean, we were below 1,360 for 6 years. And so now you get a down day like it looks like today is going to be here a week like this week is turning out to be and it's easy to wring your hands and grind your teeth but we're still up nearly 20% year to date in both metals and conditions look good for even more gains ahead.

Eric: Yeah, it's all about the COMEX and catching the Bitcoin disease, you know, "Oh my God, it's being manipulated. I can't imagine that." It'll be over. It'll be over on Monday. Away we go.

Craig: That's right. And lastly, we mentioned at the beginning of this Weekly Wrap-Up all the things you can find at sprottmoney.com. One of the other weekly or monthly features that we have is the Ask the Expert series. I get to host that myself. And I can tell you the one that we recorded about a week ago with Jim Rickards is must-listen material. Just fantastic information and it stretched out so long we had to do it into two parts. Part one is now available at sprottmoney.com. You can find it there. Part two will come out next week. And really with all that's going on, this repo stuff, the U.S. economy, the global economy, man, it's just hard to find someone who's more of an expert in that area and more of an advocate for gold. So please go to sprottmoney.com, look for Ask the Expert with Jim Rickards. Part one available now. You can listen to it over the weekend. Part two will be out next week.

Eric, thank you so much for your time this morning. I hope you have a great weekend.

Eric: And Craig, you too. It's going to be exciting here. I still have to unravel the repo thing and I don't know that I really want to know the real reason. But if the real reason is something chaotic then gold is going to get an even better bid. So I look forward to chatting next Friday.

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