“Everything I see in the physical markets is very optimistic.” - Eric Sprott -Weekly Wrap Up (August 17, 2018)

Transcript:

Man: You're listening to the Weekly Wrap-Up on Sprott Money news.

Craig: Greetings once again, from Sprott Money news and sprottmoney.com, it's Friday, August the 17th, 2018, and this is your weekly wrap-up. I'm your host, Craig Hemke, and joining us again this week is our old friend Eric Sprott. Eric, good morning?

Eric: Hey, Craig, I find it interesting you say old friend, and I'm feeling a little older after last week, so we got to chat about that.

Craig: Well, we've all aged considerably on this deal. But, hey, before we get started, I want to point out something new. This week, we want to extend a warm welcome to our newest listeners on Spotify. Spotify is a digital music service that brings listeners millions of songs and now podcasts too. It's the newest way to access these Sprott Money weekly wrap-ups and this Ask the expert podcast.

Eric: Hey, Craig, that's pretty good news. It's exciting. I know that the Spotify has many millions of customers and we'll get to spread the word a little wider, so that's great news.

Craig: That is very good news. All right, so let's spread the word my friend, it has been one of the roughest 100 days in the metals that I think either you or I can remember. And this last week has been almost had, kind of, the feeling of capitulation to some extent, gold at one point was down $50 on the week from 1211 down to 1161, and now we're back up to about 1184 this morning. You've been through a few of these in your life, Eric, any words of wisdom for everyone?

Eric: Well, more than I want to recall, quite frankly. But I'm, sort of, reminded, you know, there's things that the market does...not that I believe in the market being an honest market, but the market does, that seem to go totally against the grain of what you would expect. And I was reminded that back in the lead up to the Bear Stearns bankruptcy, as everyone was realizing, "Oh, my God, we have a financial crisis going on." The price of gold went from $1,020 to $700, during the financial crisis. And, of course, the argument is that the powers that be, who know that you're in trouble, create a weakness in gold to, kind of, mask the trouble. But ultimately, you know, the truth comes out and things right themselves and, of course, gold went from $700, then to $1,900. So those who got shaken out would have very much regretted it. And of course, everything I see in the physical markets is very optimistic.

I mean, I think of all these people that live in all these countries where their currencies are getting hammered, whether it's the Brazilians, the Indians, the Turks, the Iranians, that we're getting more and more people all the time, all of whom have a, sort of, disposition towards gold anyway. And I read this morning that the Asian demand is very robust, well, you know what? I'd expect it to be robust. I mean, the Indians consume 1,000 tons a year out of roughly 3,000 tons mined. You know, what happens if all of a sudden they're witnessing their currency weakening and, you know, they buy 50% more? My God, the effect on the physical market would be astounding, whereas, you know, you don't have that, kind of, demand in developed countries, for the most part. So I see it as, you know, we got to wait it out. And, of course, we do see things in the paper markets which control the prices, that you and I talked about all the time, where the setup for gold to rally has been incredible as it was last week when we spoke.

And then some people were postulating, "Well, we'll get one washout here and re-clean everybody out, okay?" And, of course, we've had that wash out now. And it'll be very interesting to see if yet again, the commercial banks were able to decrease their short position and increase their long position. And, of course, the speculative funds going the other way, and they're going to set themselves up for getting hammered. So it will be... Well, great numbers came out last week in the COT, Commitment of Traders report, I suspect we'll have great numbers again this week. And these things always are pretty well, you know, follow the wash, rinse, repeat situation we've been in for many, many years here. And, of course, speculative funds always lose, so that would suggest that gold should rise from here.

Craig: In a sense, kind of, the same old thing we've seen now several times in the last...really the last decade, where the western investors sell the paper and push down the paper price, while the eastern investors by the physical.

Eric: Yeah, you know, it's funny, I get very skeptical of a lot of things that are going on, sort of, in the world economy, if you will. And I was, sort of, harken back to an item of interest this week, when Royal Bank of Scotland, fining, you know, was assessed t0 $4.9 billion fine for something they did in 2008, 10 years later the fine comes out, you got to wonder about the timing of that, okay? But I don't wonder, but I know exactly what was happening. They had to wait 10 years for Royal Bank of Scotland to be able to pay the damn thing. And, of course, when you're a bank, you get to borrow at zero and lend at three. Hey, if you just keep your nose clean, you're going to make money, and you're going to turn your fortune around. And finally 10 years later, the fortune was turned around, they pay off the U.S. government, and the next thing you know, they announce the dividends, so, what a wonderful thing to be a bank, you know. And when you can own government bonds, you don't even have to include them in your capital, you can lever them as much as you want, next thing you know, you know, you've come out of it.

And it's this favoritism towards the financial world that is, in essence, dispossessing the average worker. So between that... And another thing I noticed is that we keep getting these statistics, U.S. economic statistics where, for example, GDP came out of four, but they revise the first quarter way down, and therefore the second quarter went up. We had housing starts, they said they were up in July, but they revised June to being way down. The fact is that the July number was worse than the June number. But when you revise the previous month, you can say it's not. And we're seeing a lot of that, it, sort of, you know, makes me a little skittish to think that, you know, "Is this just a setup here that we keep getting all these phony numbers when we're really...we're not making any progress whatsoever?" But the numbers look good every month because we've revised the previous ones down. So we have to be a little bit aware that those things seem to be going on more and more all the time here.

Craig: Yeah. Well, and then, as you said, in summer, it's been a very difficult week but that Commitment of Traders report this afternoon will probably show, jeez, levels maybe we've never even seen before of the bank's moving to where they are not the ones that are short anymore. And instead, it's all the speculators, that will serve to seem to be a positive setup going forward.

Eric: Yeah, no, we're there. I mean, we're perfectly positioned where things should reverse in terms of the, of course the sentiment's just awful for gold and people who watch those sort of things and they see the sentiment gets so low, it can only go one way, I mean, it has to get better. So, you know, I think we're all right that way and I do look forward to seeing the Commitment of Traders report. And, you know, China seems to be coming back a little here, the premiums were up pretty good yesterday, we're up around $6 premiums, which we were almost flat before that. So, you know, maybe between the various Asian countries that love gold, we could see a pretty good turn here.

Craig: Speaking of sentiment, my friend, oh, boy, did we get a washout this week and the shares, the who index has fallen just in the first four days this week from 159 to 139, that's a drop of nearly 13% in a week. Is that kind of a...? I mean, you've seen this before, is that, kind of, a capitulation in the sector? Or is that just the final shares of big money getting washed out, now, finally, we're in the bottom?

Eric: Yeah, well, all I can say, Craig, is, it better be right because that's a big decline in a week. I mean, don't be annualizing that. I mean, we'll have the MD discussions in about eight weeks. Anyway, no, I've seen it before and in fact, I can remember so distinctly at the bottom in '16, that shares got pounded the week before, for no reason. It didn't even seem like there was a reason and it was the final capitulation one day before the stocks went up by, oh my God, I think they went up by like, 100% or so, in no time, in six months. So, I've seen this before and people do lose confidence in it. And, of course, they're looking at...once you see gold with 1200, everyone's going, "Oh, my God, we're going to go below 1,000 or 700," numbers like that, which is extremely unlikely because nobody will be mining gold at $700, so I think we're pretty safe there. So, yeah, I know that it's certainly a sign of capitulation and I hope that that's what ultimately manifests itself here.

Craig: And specific to a couple of companies we've talked about from time to time here, I know you've got a few favorites. Any thoughts you can add on what's happened in some of those this week?

Eric: Yeah, well, of course, got totally bombed and it went from...I guess it had hit a high of almost 31 and is at under 25, I think now, that's pretty good hit in a very short time, probably about six or seven days. I can tell you that... I mean, I'm certainly not disappointed with how we're operating, yes, I'm disappointed in the gold price but the operations have done well. As I've mentioned before, it's hard to imagine what happens to gold production when your grade goes from 20 to 60 grams. But we have an order body that we're going to be getting into that does have 60 grams, I suspect it might be a little higher ultimately, when we get in there.

So things can change and talking about the foster or minor, things can change very dramatically, we may end up being somewhat surprised how the results come out in the final analysis, so I think it's all good there. Novo came out and announced that, you know, they're seeing good continuity in the Pilbara drilling and testing that they have. The various conversations I have with people who have been on the ground, including people at Kirkland, Novo, Pacton, I think everyone is a total believer in the, sort of, universality of the deposit and the grade although we don't have data on grade yet that we can bank on. But I'm certainly pleased after the conversations that I have with various people about what's happening down there. So we've got that to look forward to as well.

Craig: And you mentioned some Canadian stocks from time to time to the Garibaldi was one that you like, you still feel good about that one?

Eric: Yeah. Well, I do and it's gone down quite a bit actually, I'm an over 20% owner. Being an over 20% owner, I'm allowed in a one-year timeline to buy five, excuse me, private purchases, which I've now done, okay? And I don't know what percent, I own 23 or 24, but I can't buy anymore and I'm very, very frustrated that I can't buy more because believe me, if I could buy more, I'd buy more. And when I look at the trading every day and I look at the number of trades by dealer, I'm always looking for, "Okay was there a big seller here?" And I'm looking, "Oh my God, you know, the biggest guy has sold all of 20,000 shares." Twenty thousand shares of stock is like $50,000, like, big deal, you know, and he knocks the stock down by 5%. What would happen if I could go in and just put a bid in? You know, and it wouldn't be for 20,000 shares.

So anyway, and, you know, having listened to some of the interviews of the people on the ground there, I mean, I'm pretty excited about what will happen when they finally get the news release that we're all getting a little impatient about it, and I guess I find myself in that camp. I'd hate to think that some people are selling their shares down here when we might have one of the greatest ore bodies of all time. So hopefully, there'll be a press release, sooner or later that takes us there but I'm excited about it actually. It's funny to be excited because the stock's hitting new lows, but I am.

Craig: I think that is remarkable too, like you said, somebody selling what would, I'm sure to them, feel like a lot of shares, but it's not a whole lot in the big picture, but yet, down it goes. All right, one last question, Eric. We had a listener question come in this week, someone looking to add some physical metal, I think really, maybe for the first time here at these prices. And this question just mainly was, In Europe, just in your basic opinion, is it worth it to pay the premium that's always associated with something like an American Silver Eagle? Or is it fine just to buy the generic round and save yourself some of that money over spot?

Eric: Well, I have both, of course, I own lots of coins and I own lots of silver. I like the coins because they're fungible, you know, people will accept the coin, pretty hard to move 1000 ounce bar of silver. I think there'll always be a premium for the coins because it costs money to punch out a coin. And it depends on what size you're talking here, I mean, if somebody's putting millions of dollars into it, I don't know if you buy a million dollars' worth of coins because you don't need to look that around. But I would say for someone who wants something that will be readily usable, then the coins are, of course, a better vehicle. If somebody is speculating on the price of silver over the longer run and you want to make a max-margin on it, sure, by the thousand ounce bars or some other generic, kind of, coin and pay less of a premium.

Craig: Fair enough. And here's... Tell you what, that dovetails right into just as we wrap up this call, you know, you Canadians up there have these RRSP accounts, you probably know some folks who... In America, we call them IRAs. Well, hey, you know what here we are the depressed prices, we just talked about ways you can purchase physical metal. And, of course, you can invest in your RRSP account year round up there, even here in the summertime and so Sprott Money has partnered up with Questrade, so that anyone can buy Bullion in their Registered Retirement Account. What a perfect time to do it, the process is fast, it's simple. So don't wait until the deadline to invest in your future visit sprottmoney.com or call 888-861-0775 today, maybe take some money out of the equity markets and put it into these devalued precious metals at this point, it sounds like a pretty good idea to me. Eric, thank you for your time this morning. We've survived this week and hopefully next week, we'll have something better to talk about.

Eric: Let's hope so. It's been a while my friend.

Craig: Certainly seems that way, doesn't it? All right, well, hey, have a great weekend and from all of us here from Sprott Money news and sprottmoney.com, thank you for listening, we'll talk to you again next Friday.