Weekly Wrap Up

“Everything is going down.” Why you need to own gold bullion right now - Weekly Wrap Up ( Dec 21, 2018)

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Dec 21, 2018

It’s four days to Christmas, and gold is up $20 on the week. Does that mean the December rally has begun? Eric Sprott stops by to break down all the gold and silver news you need heading into 2019, including:


  • Which company delivered an ominous warning for the market
  • Why silver may be setting up for a tremendous run.
  • Plus: signs that the big run for gold has already started

“More important than the gold going up is what else is going on. It’s funny how the macro-theory all along suggested that when the Fed stopped their quantitative easing and rates went up—but particularly the quantitative easing, where they go from quantitative easing to quantitative tightening—that one should have expected the stock market to roll over. Because the whole 2009 to 2018 was essentially a fraud created by the Fed, by doing things that no one in the history of the financial world had ever heard about before: printing money and having zero or negative interest rates. Well here we are. Now we’re doing the opposite. Are we surprised that stocks are going down? Well, we shouldn’t be.”

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Announcer: You are listening to the weekly wrap up on Sprott Money News.

Craig: Well, greetings and happy holidays from Sprott Money News and Sprottmoney.com. It's Friday, December 21st, 2018 and this is your weekly wrap up. I'm your host, Craig Hemke. And joining us, as usual, this holiday season is Eric Sprott himself. Eric, good morning.

Hey, good morning, Craig. What a week? Wow. There was some crazy action in the stock markets and the gold market, so we have a lot to chat about here.

Craig: That is for sure my friend. And hey, we mentioned the holiday season. Yeah, it's only four days to Christmas. If you still got some shopping that you need to do, we want to remind everybody about our season's greetings sale. The folks at Sprott Money have a special promotion for the holidays. You can buy a 1-ounce Gold Maple Leaf coin at just $38.50 over spot. That's a great deal, but this offer is only valid through December 26. So you got to like, get up before Christmas. Call 888-861-0775, or of course, visit sprottmoney.com for more details. Yeah. Eric, crazy week, a very busy week with the Fed and all the economic data, all this stuff going on in Washington, D.C. about maybe a U.S. government shut down. And thus as we speak, gold's up about $20 on the week. We'd take that every week, wouldn't we?

Eric: We would take it every week, but I think more important than the gold going up is what else is going on. And you know, it's funny how the macro theory all along suggested that when the Fed stopped their quantitative easing and rose and rates went up, but particularly the quantitative easing where they go from quantitative easing to quantitative tightening. That one should have expected the stock market to roll over because, you know, the whole 2009 to 2018 was essentially a fraud created by the Fed by doing things that no one in the history of the financial world had ever heard about before. Printing money and having zero or negative interest rates.

Well, here we are. Now we're doing the opposite. Are we surprised that stocks are going down? Well, we shouldn't be because they created the bubble and now they're pricking the bubble. And I mean, it's almost shocking how fast stocks are going down, but when smart people realize, well, you don't have the same environment for stocks to go up, there's only one way to go. In fact, we reverse the environment. It's a negative environment that we have quantitative tightening. So the macro theory of why they went up and why they're going down is totally playing out here.

Craig: Well, no doubt about that. I just saw a report this morning that said 93% of all assets are now down on the year. Gold's still down about 3% but that's pretty good compared to everything. I think the stock market, the S&P is now down 7% or 8%. So you're right, everything is going down.

Eric: And I think it's probably important to point out that one of the great problems that happened since the Fed raised the rates is, it looks like the Fed foot is not there. The fact that they would talk about, you know, two more increases next year and continuing to shrink their balance sheet, the stock market just couldn't handle it here. So it's bad enough that rates are up, but to think that they want to do more quantitative tightening, the market just realizes where it should be going here.

And you know what's happened here when the stock market goes down, it starts to make you think, "Well, how do we honor all the obligations we have?" And I can speak on the municipal level, the state level, the corporate level, the federal level because you know what, we're going to have serious, serious underperformance of pension plans this year. As you mentioned, 93% of assets are down but what do you think the pension fund performance is going to be like this year? And they're already underfunded at all of those levels.

So we have these problems that are shaping up here. We've lost 16.7 trillion in stock value from the top this year. So people are going to start thinking about deficits, whether they're budget deficits, trade deficits, pension fund, underfunding, healthcare costs, military costs. Like, they're all coming to the forefront now because we have a totally different environment here.

And we're seeing Eric, it's not just a U.S. issue, there's definitely a global slow down now that's happening and it's global markets. I know you watch all sorts of data as we go through the week. What has caught your eye this week?

Eric: Well, I think one of the important announcements was a FedEx announcement. I mean FedEx is a very, very international company and they basically said that they all of a sudden saw a marked decline in business. And apparently, and I don't follow FedEx that closely, but you know, three months earlier or as little as a month or so earlier, they'd raised the estimates for the year and now they've cut their estimates for the year and they suggest that they see a declining trend going forward into 2019.

So that is an ominous warning that things aren't going well. Not that we need warnings because we see housing, we see autos, we see retail, we see bank stocks collapsing, we see transports in a bear market, we see bear markets all over the world, whether it's Germany or Russia or I mean so many markets are already down more than 20%, including for example, the Russell in the stage. I think the NYSC index is down over 20%. Transports are down over 20%. I mean there's so many signs of a bear market and the FAANGS I haven't mentioned them, you know, there's so many signs that we're in a bear market and of course, the logic, the macro logic for being in a bear market is right there. So it's all manifesting itself.

Craig: Eric, we've been talking for weeks really, maybe even longer than that, about the likelihood of a year-end rally in the metals. How the last five years, each of the last five years have seen a rally in both gold and silver that begins around the time of the December Fed, middle of the month goes through the end of the year. Goes into the first part of the following year. Looks like we're working on the sixth year in a row now and now we're seeing some really interesting physical numbers around the planet.

Let me lay these on you. I just saw these this morning. The Russians, as you know, are hoarding gold at this point at a steady pace. They added another 37 metric tons in November alone. India, you know how they like gold, they added 50 metric tons in their most recent numbers in October. And now here's the stunner, in October, India imported over 1000 metric tons of silver, 1031 to be precise. That's the most they've done it a month since December of 2015. And I think everybody listening remembers what happened after that and the run that silver went on in early 2016.

Eric: I mean, that's a tremendous number. I think the numbers for silver production, something like 28,000 tons. So if somebody buys 1000 tons in the [inaudible 00:07:48], that'd be 12,000. That'd be like 40%, over 40% of all the world's silver production which you know, typically India wouldn't be buying 40% of it, but they are now. And of course, there aren't the reserves of silver hanging around, like there were a gold reserves in the sense that every ounce of gold ever produced is still lying around somewhere in the earth, in somebody vaults somewhere but silver gets consumed. So those are a stunningly good data points which would suggest that gold, the precious metals should continue to perform well.

And while this rally, this mason rallies kind of started both the metals in the stocks using data point on Wednesday. And I saw the gold was up pre-meeting and then the announcement of the increase and it went down post-meeting and maybe down like five or six bucks, something like that. It was pretty modest decline, but the gold stock indices were down 6% on the day. What the hang is that? We're down 0.5% and go over down 6% of the gold stocks.

And I thought to myself even before Thursday started, you know, this reminds me of early 2016. There was a day probably a January third, fourth, or fifth, in 2016 when the gold stocks did the same thing. They went down 5% or 6% in the day and then boom, they hit bottom and they went up probably 100% in a very, very short time. And you got to ask yourself, why did this happen again? Why would gold stocks go down 6% in the day when the gold price is down by like 0.5%, just was totally incongruous but it's like somebody can set the market up that people panic out or something and he's just taking advantage of them all before the big run starts and I think the big run has started.

I was looking at the comparison of the gold stocks and, of course, subsequently gold went up 5% yesterday, okay? And it's interesting, it went up 5% when the stocks were down 2%. Now the next thing I'll tell you is that, you know, the S&P and most of the averages are down in excess of 15% and gold stocks are up 15%. We've had a 30% over-performance in about three months. We had a 7% outperformance in one day yesterday. You're a portfolio manager.

You're being brutalized. Nothing is working except all of a sudden, the computer shows you, oh, gold is working. Gold stocks are working. That's the thing. That's where, gee, if I could outperform by 30%, I'd be a darn hero. But of course, none of them own them, but they're going to come around here. They will be and undoubtedly some are starting to come around, but I think we are set up for a bull market in gold and silver here. I think we're set up for a bull market in precious metal stocks that I think all the signs are kind of there that the game is on. So I find it very exciting what should happen here going forward.

Craig: Agreed. And Eric, before we wrap up, there was some interesting news on one of the stocks that you're involved in that Novo resources. I saw some stuff on that yesterday. I would imagine you probably have some comments you could share.

Eric: Well, it's funny because they're very confusing sort of news release. It took quite a while to figure out exactly what had happened because we had high grades in concentrates and the concentrates were only part of the sample and it was a little confusing. But generally speaking, I would say the thing that I take to heart is that in the edge in that area, they mined something like a, I think it was 150 tons of gravels and they ended up with I think it was about 0.7 grams per ton net. That doesn't sound like much, but gravels are very inexpensive to process. And there were some calculations done suggested there could be 36,000 ounces in every square kilometer down there. And they got 1000 square kilometers. Well, if we multiply 1000 times 36,000, you get an awful big number and an awful lot of gold.

And this gold is stuff that had sort of precipitated. Sorry, had fallen out of the conglomerates because the conglomerates were eroded the way it just sits on the ground. So it sort of indicates that there's, one, a huge endowment of gold throughout the conglomerates, but the conglomerates are harder to mine. This does just lying on surface it's covered by maybe a meter of the dirt. So that was good and the stock reacted positively and you can kind of see where there could be a big story here that got a lot of work in front of them to prove it up and make sure it all works. But at least we know that the gold's in the ground for the time being, but more tests are certainly necessary.

I should also mention Sukamon on Friday had a pretty good release and the stock got bombed, which is not unfamiliar to some of us Canadians and junior gold stocks because it would appear that some forces at work, the shorters, make things happen. I think the lifespan for the shorters in gold stocks is going to be over here because they're going to get run out of dodge as these stocks are rallying because the gold price is going up and that the future looks brighter and I think the games will end here shortly for those shorts.

I think everybody would be music for everybody's ears, I guess is what I'm trying to say. Because that yeah, that gets very frustrating whenever there is even good news. It seems like in this, at least when the metals are under pressure, there's always that sentiment to just smash everything regardless of what the news is. So yeah, maybe with sentiment changing, a really good-looking year ahead of us is as like you said, outperformance in the shares, outperformance in the metal, gets institutional money interested in us again. It sure looks like we are set up for a very interesting 2019. Does it not?

Eric: Well, you know, it's like I'm getting a déjà vu all over again, Craig. I think I remember that in '16 when we carried on with these conversations and every week the stocks went up and we had like three months in a row things going crazy. And it would be nice because when things go crazy in the gold area, they go up fast, which is not going to be a 5% or 10% move here. I think it would be my crystal ball says there'd be a lot more than that. So lots to look forward to.

Craig: Agreed with. Agreed with you there too. Well again, Eric, it's almost the holiday season is upon us really and we're really close to the end of the year. And lastly, just as we wrap up, Sprott Money just wants to wish everybody happy holidays filled with relaxation, fun, laughter and really very best wishes for a prosperous new year. Same it goes out to you, my friend, hopefully, a great holiday season and a prosperous new year for you too.

Eric: Well, it's been pretty good. You know, for some of us that are sort of in the right places it's been okay. And I hope that it's a lot easier for everybody in 2019. And I suspect that's what's likely to happen. So all my best to all the listeners to you and we look forward to our last broadcast next Friday if that is the way it's going to work out and all good prospects in the new year.

Craig: Let's do it. And again, thank you for all you've done this year, Eric. And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening. Have a great holiday season and we'll talk to you again next week.


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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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