Eric Sprott on Weathering a Rough Market

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. It is Friday the 7th of September, 2018. And this is your weekly wrap-up. I'm your host, Craig Hemke, and joining us, as usual this fine Friday morning, is Eric Sprott himself. Eric, good morning.

Eric: Hey. Good morning, Craig. We're going into a week when we're going to celebrate the 10th anniversary of Lehman Brothers, by the way. Which might bring some people back to a reality, and lots of interesting things going on the precious metals market. So we've got lots to talk about.

Craig: Yes, we do. And we are rapidly approaching the end of summer. And so Sprott Money would like to just remind everybody that we're offering great deals on some very special products. All you have to do is go to sprottmoney.com, click on the Deals tab and you'll find them there. And this is your last chance to take advantage of that end-of-summer sale. Great stuff, great opportunity to stack some physical metal at these low prices, again, sprottmoney.com or just call us at 888-861-0775.

Yes, my friend, there is a lot going on. No question about that. The price continues to go sideways. But we got some news this morning on the job front here in the U.S., and we certainly got news all week long about the physical metal situation. I know a few things that caught your eye. What can you tell us?

Eric: Well, I think the most interesting thing from a precious metals investment, or investor perspective, is the fact that the U.S. Mint announced that they were no longer able to supply 2018 Silver Eagles, that they'd run out. And that in due course, they will take orders again, supposedly sometime this year. And of course, what's interesting about this is, at its peak, and I think this is back in something like '08 or '09, they were selling 50 million Silver Eagles a year. I think the number is that so far this year they've sold nine million Silver Eagles.

And I don't know what happened in the last few weeks, either somebody awful large came in and cleaned them out or they're just not prepared to sell a lot. And of course, this very often happens, I mean, it makes sense if you were in the business where you thought that you were selling inventory that you couldn't replace at the right price, you'd just stop selling it. And of course, we're at a low in silver. And all of a sudden, you can't buy it, which is somewhat ironic.

It's like a guy who's... One story says, "Well, I can sell you some at three bucks a pound." The other guy is five bucks a pound, and then you say, "Well, I'll take it at three bucks a pound." "Oh, I don't have any." And that's sort of like the U.S. Mint. I mean, the price is low but you can't buy it. So it really makes you wonder what's going on in the silver market.

Craig: Well...

Eric: I think the other... Go ahead.

Craig: No, I was just going to say the same thing for gold, Eric.

Eric: Yeah, they still have gold. They're still selling gold, as far as I know.

Craig: No, I'm talking about physically things that we're seeing around the planet.

Eric: Oh, yeah. Oh, my God, yeah. Well, I mean, we had... Like, to me, you know, I think last week I said to you, "It's going to be interesting," or the week before, "What's going to happen in India when everyone sees the rupee going down and they love gold and they don't like currencies? They're not going to sit there and sell their rupees and buy dollars. They just don't like currencies, so they'll buy gold." And lo and behold, we get this data point that in the last month, India imported, I guess for the month of August, 100 tons of gold. And that was up 116% from the same time last year.

Now, to put it in perspective, I believe that the mining from countries ex-China, ex-Russia, both who don't export their gold, is about 20...let's call it 2400 tons a year. That's 200 tons a month. India bought half of the world's tons of gold in the month of August. That's a stunningly large number.

And of course, I would imagine that with the rupee continuing to be weak, and the real buying season coming up for the Indian population, that that could be sustained here. And even though we think that the price is totally determined in the Comex and the electronic market, if you will, the electronic market cannot ignore the physical market. I mean, if some guy walks in and says, "I need this gold now." The electronic market, if they think they're going to knock it down, it has to supply it. And if they want to knock it down to 11.50, perhaps the Indians would buy more than 100 tons, which would put great stress on the inventory system. So I think those two things in the physical market have been very, very significant.

Oh, and the other one is that the...the third thing is that the Central Bank of India bought eight tons of gold, which they hadn't done in a decade. So that's an interesting sign. And it might be that they have to do that to cover some bond issue that they made that was convertible into gold, we'll see. We just have to monitor things. But I'd love to see the Indian Central Bank coming back into the market here, that would be very constructive.

Craig: Well, it's not just the Indians who are dealing with the stress in their currency, which I guess technically falls into the category of an emerging market. I mean, how are the Indonesians going to respond? How are the Turks going to respond? How are the Malaysians going to respond? This emerging market chaos, mainly due to the surging U.S. dollar, I mean, not only is it contagion for global markets, it could be quite a contagion for the global physical gold market too.

Eric: It could very well be. And I think I said last week that something like 94% of the world's population has currencies that are weakening. And most of that population has an attitude towards gold that it's a very positive thing, they don't have that North American attitude that you've got to have the fiat currency, but they like physical gold because they know from their own experience that... What is it? Something like the 3500 currencies that have existed in the life of mankind all have become worthless. That's pretty good record, 100% worthlessness.

And as you and I would both espouse, I think that'll happen to all the other currencies too. So if your culture has been around long enough, you know exactly what you should anticipate. And the Indians and the Chinese and the Thais and the Koreans have an attitude towards gold, rather than, I think, currencies.

Craig: Now, we have seen price, I don't know, try to stabilize at least a little bit here, Eric. I mean, it has been just an awful four or five months now. But we're trying to find some support around $1200, which is an area that has often acted as support for the last 4 or 5 years. Do you think we're finding a bottom here?

Eric: Well, we should do, because as you and I've discussed many times, the commitment of traders situation is incredibly bullish for gold. In fact, there's fundamentals, I mean, it's not as though the dollar has been ramping up lately. It's trading under 95, I think. So it's been up to, what? Ninety-six and change, and now it's back down at 95. There's, in a way, a little bit of chaos going on in the United States with who knows where we're going to be tomorrow or this afternoon. I mean, with all the dots and doodles that are going on in the White House and the Congress and "The New York Times" and all those other things that you have to deal with down there, I mean, nothing seems very predictable down there. I can't imagine that, and the whole question of the de-dollarization where, I think Germany, one of the ministers in Germany came out and said, "We got to look at perhaps changing this total reliance on the U.S. dollar, the swift money system, we should change that. Europe should get some independence here." Of course, we've heard this from countries like China and Russia and others.

So you can sense that there is a feeling there of a parting of the ways. Because unfortunately, the president has basically, probably, angered everybody. I've seen he took a shot at Japan there yesterday. I don't think he's let anybody off his list actually. So, I mean, there's probably a price to pay for all of that. Maybe people will start disliking the U.S. dollar. And it hasn't gone anywhere in the last three weeks.

So there's lots of reasons for gold to stabilize here. We have the electronic market is set up, properly Comex. We got the physical market in gold looking good. We know that the sentiment is at a low, I mean, the odds are it's going to go up. And what seems odd to say that with this emerging market collapse going on because people try to equate the emerging market collapse with gold going down, but I don't think there's any logic to it, okay? That's just the narrative that spun. I think there's a good chance that gold will rally here.

Craig: Lastly, Eric, I'd like to draw upon your experience, your wisdom of decades in this industry and decades of owning, trading, being associated with mining companies, boy, you look at indices like the HUI or you look at the ETFs like the JDX, and they don't appear to be anywhere near to finding a floor just yet. I'm just wondering, what kind of advice, just in general, you can pass along to the listener who owns mining shares or is thinking about buying some mining shares at these levels, what have you learned in the past when we've gone through situations like this and what do you look for on the way out?

Eric: Yeah. Well, the first thing you do is you try to stay calm, right? You know these things happen. And they happen in lots of things. I mean, for example, up in Canada here, we had cannabis stocks roared up and cannabis stocks roared down, then they roared back up again. And you've got to hold to either be a believer or a disbeliever. If you're a believer, you stay the course. You can constantly assess your portfolio. For an individual, there's information out there in various stocks and they're probably not that difficult to get out of. I have always a little more difficulty with that because they end up with big positions that aren't nearly as liquid.

But I think you just got to be...you're either a believer or a non-believer. And if you're a believer, you kind of think, "Okay, this is going to come around." And by the way, when it comes around, it's going to be one hell of a payday. I mean, I could go back to, you know, we've talked at length about Kirkland Lake Gold and we talked about it when it was, whatever, $5 American and it goes up to $20. I mean, that's a pretty outsized gain for a two-year position than anybody could have participated in, anybody could have done the research on that, wasn't that complex, or listen to interviews.

So I think there's lots of hope, I mean, I'm scouring, drilling reports every day, looking for the next one. And there will be a next one. And there's lots of good current ones that are undervalued. So I'm...I mean, I tend to be an optimist. And it's paid off for the last 18 years, because we were at $250 gold and we're now at $1200 gold and the stocks are up...I don't know what they're up by, but they're probably up by 500% on average, and they've been up over 1000%. So in the scheme of things, that's a good return over those 18 years.

Craig: So patience, do your own homework, try to unearth where there's real value, and maybe stick with more of the exploring and the juniors rather than the majors?

Eric: Well, something where there can be what I call a big delta, where something's changing, right? I mean, it's pretty hard for Barrick to change quickly. It's not that hard for some guy exploring for gold to all of a sudden say, "Oh, my God, I've got a discovery here." And, "Look what I got." And, I mean, some people might find it difficult to understand it, but there's lots of places you can go to kind of get research because I find the chat lines are...even though some of them are just a waste of time because people are screaming at each other, there's also lots of good information on some chat lines. We have one here called ceo.ca, very, very responsible people post to it. I mean, they're way more intelligent than I am, okay? I mean, if I find it's such a bonus that I can go there and see the comments about some company you just drilled something. And these are pretty on the mark comments. So, it's easier today than it used to be, quite frankly, with the internet. So if anybody wants to do their work, I think there's opportunity there.

Craig: Well, all right, my friend, as we mentioned when we began this week's program, we are almost at the end of summer, which means it's football season, which is the best part of the...best time of the year, frankly. But that also means that we are moving into fall, and the folks at Sprott Money want to let everybody know that something that everybody looks forward to every year, our autumn product guide. So there's a product guide that we want for the holiday season too. But the one here for the fall is always full of great deals and it will be released soon. So, please stay tuned and follow sprottmoney.com for more information.

Eric, I look forward to seeing what happens over this next week. I think it's going to be pretty volatile and it will certainly be fun to wrap it up again with you next week. Until then, I think we'll give you the rest of day off and I hope you have a great weekend.

Eric: You too, Craig, all the best.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening and have a great week